Subject: Supply Chain Finance

Submitted To: Syed Waqar Akbar

Submitted By: Zia ur Rehman

Class: MS-SCM-3

BAHRIA UNIVERSITY
Today’s complex and long supply chains are almost inevitably subject to disruption. But the
stakes seem to have risen, whether due to intensifying trade disputes and political upheavals (of
which Brexit is only one example), or to high-cost natural disasters plaguing more of the world.
Global companies questioning how to assess and manage these risks and prepare their supply
chains accordingly. Which precautionary measures make sense, and how much do they differ by
industry?
Natural disasters are particularly dramatic illustrations of the difficulties facing supply-chain
managers. Even in a comparatively benign year, such as 2019, global losses due to earthquakes,
floods, fires and the like reached $150 billion. But dramatic spikes are happening more often,
with nearly $350 billion in losses recorded in 2017 (marked by Hurricanes Irma in the
continental US and Maria in Puerto Rico) and in 2011 (Thai floods and the Fukushima
earthquake-tsunami).Recently Covid-19 has took the world by surprise and block the extend the
supply chain to the point where they have to choke in order to maximize their flexibility.

How companies manage supply chain risk:

The degree of professionalization of supply-chain risk management varies widely. Many
companies still follow a more-reactive approach in responding to supply-chain disruptions. That
said, almost all the companies that we surveyed diversify their operations and implement mufti-
sourcing strategies wherever feasible and economically justifiable. Working closely together
with their suppliers and performing regular supplier audits is part of their general business
practice. On an ongoing basis, they monitor the most relevant risks—such as regulatory changes
or changing customer demand.
But relatively few invest much time and money in automating any of these activities. When hit
by sudden supply-chain disruptions, they build temporary task forces to manage the issue on an
ad-hoc basis. In some cases, precious time is lost due to insufficient preparedness.

Furthermore, these companies continuously monitor trends and events that might cause
disruptions in the global supply chain. They work to increase transparency throughout even
multi-tier supply chains, with leaders in supply-chain risk management setting up databases of
suppliers across tiers, including each supplier’s location, performance, and audit results. And
they use external software and data sources to receive push notifications about the latest
incidents, together with the possible implications on their supply footprints.

Supply Chain Resilience:

Considering increasing business complexity and growing overall uncertainty, establishing a

systematic supply-chain risk-management approach becomes more and more relevant. Many
companies relying mostly on reactive measures today want to improve their supply-chain risk
management capabilities—and say they are willing to invest more time and resources to do so.
Multiweek supply-chain disruptions causing significant financial burden to have triggered a
revival of risk management in operations. Advanced companies aim to prepare for new risks,
including cyberattacks, or environmental challenges, such as de-carbonization of the overall
production footprint.

Increasing supply-chain resilience is a leading theme for many globally operating companies
with complex operations. Based on our experience, we suggest a four-step process that can be
tailored to a company’s needs based on its individual starting position.

1. Identify the most relevant events and risks threatening to disrupt the company’s supply-
chain operations.
2. Define possible outcome scenarios and assess their high-level impact. Depending on the
level of exposure and magnitude of the impact, the company prioritizes risks for targeted
attention.
3. Develop response strategies for prioritized risks. It is essential to create an unbiased
process to decide where to invest and how to prepare. A systematic calculation of
business cases is the foundation for these investment decisions. The trade-off between
investing in prevention versus taking the risk of being hit when unprepared—resulting in
severe disruptions and losses—needs to be quantified. Different dimensions important to
the company need to be incorporated to create a meaningful business case, otherwise it is
difficult to get the required funding for risk management.
4. Finally, supply-chain risk management needs to be incorporated into regular decision-
making and planning processes. Embedding risk-management capabilities as a regular
ingredient of business decisions in operations is the first step towards creating a true risk
culture and a resilient company.

By Knut Alicke and Anna Strigel

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A systematic classification of risks, and development of a related response strategy, is essential
to improve supply-chain resilience strategically—while keeping required investment to a
minimum. A simple framework can help by classifying risks on two axes: the vertical estimates
to what extent a risk can be anticipated, while the horizontal quantifies the risk’s expected impact

 “Manageable surprises” are difficult to anticipate but manageable in terms of impact.

 “Black swans” are hard to anticipate and severe in terms of impact.

 “Brewing storms” can be anticipated and will have a high impact once they materialize.

 “Business challenges” are typically low-impact risks that can be both anticipated and
managed quite easily.
Tools used for Supply Market Risk Analysis:

Porter’s ‘Five Forces:

Porter’s ‘Five Forces’, were created to describe competitive forces in a market economy. The
‘Five Forces’ are the forces that shape an industry.

1.  Competitive rivalry

Higher levels of competition create more options for buyers. Factors include the following:

a.  Diversity of rivals

b.  Product/service differentiation

c.  Industry growth rate

d.  Fixed costs/value added

e.  Number of competitors

f.  Extra capacity in large increments

g.  Acquisition trends

h.  Exit barriers

i.  Switching costs

j.  Relative size of competitors

2.  Threats of new entrants

Examples here might be some other low-cost country manufacturers entering many of the
traditional manufacturing strongholds. Factors include the following:

a.  Capital requirement

b.  Availability of skilled workers

c.  Economies of scale

d. Access to distribution channels, inputs or critical technologies

e.  Knowledge of market

f.  Expected retaliation

g.  Legislation or government action

h.  Differentiation

i.  Product life cycles

j.  Brand equity/customer loyalty

k.  Risk of switching

3.  Threat of substitutes

The threats of substitute products and services. For example, aluminium is replacing traditional
tin-plate in beverage container industry. Factors influencing this include the following:

a.  Relative performance of substitutes

b.  Relative price of substitutes

c.  Higher perceived values of substitutes

d.  Ease of buyers switching

e.  Buyer propensity to substitute

4.  Bargaining power of buyers

For example, as buyers begin to consolidate specifications and develop industry standards,
increasing power is created over suppliers in the marketplace. On the other hand, when the
quality and performance of the buyers’ products or services depend critically on the suppliers’
inputs, the suppliers have the upper hand. Factors include the following:

a.  Buyer concentration

b.  Buyer volume

c.  Buyer switching costs

d.  Price sensitivity

e.  Product/service differences

f.  Brand identity

g.  Availability of alternative sources of supply

h.  Percentage of the total costs

i.  Impact on quality or performance

j.  Threats of backward integration

5.  Bargaining power of suppliers

As many supply markets begin to consolidate, fewer suppliers mean that a greater amount of
supplier power exists in markets. Factors include the following:

a.  Supplier concentration

b.  Concentration of procurement

c.  Switching cost

d. Brand of supplier

e.  Threats of forward integration

f.  Significance of orders to suppliers

g.  Industry capacity utilization

h.  Ability to pass on price increases

i.  Availability of key technologies or resources

Buyers need to take a high-level view of the marketplace and begin to brainstorm and review the
implications of these changes in the marketplace with key stakeholders.

The ‘Five Forces’ can also be used to analyze individual potential supplier’s competitive
position.

Supplier analysis

 Establish benchmarks through industry databases

 Requests for information 

 Value chain analysis 

  Supplier research 

Code Verification Solutions

Within a digital supply chain, one of the greatest risks is vulnerabilities introduced by third-party
code that has been integrated within a proprietary system. This is exactly the kind of threat that
caused a  major data breach at Ticketmaster earlier this year.

Therefore, solutions like IBM AppScan and CA Veracode are an integral part of the supply chain
risk management toolbox. All third-party code should be scanned for integrity before it’s allowed
anywhere near internal systems or data.