risk management supply chain case study

A practical approach to supply-chain risk management

In the last decade , a number of organizations have been rocked by unforeseen supply-chain vulnerabilities and disruptions, leading to recalls costing hundreds of millions of dollars in industries ranging from pharmaceuticals and consumer goods to electronics and automotive . And multiple government organizations and private businesses have struggled with cybersecurity breaches, losing critical intellectual property due to failures in the supplier ecosystem.

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At the heart of these crises is a common theme—the lack of robust processes to identify and successfully manage growing supply-chain risks as the world becomes more interconnected. New threats, such as cyber-ransom attacks, are emerging alongside more traditional and longer-acknowledged supplier risks, such as supplier bankruptcy.

The challenge of supply-chain risk management  has been exacerbated by globalization, where even sensitive products like defense systems use raw materials, circuit boards, and related components that may have originated in countries where the system manufacturer did not even know it had a supply chain. This increased complexity has brought with it more potential failure points and higher levels of risk.

Yet progress in addressing these risks has been slow. In our 2010 survey of 639 executives covering a range of regions and industries, 71 percent said their companies were more at risk from supply-chain disruption than previously, and 72 percent expected those risks to continue to rise. In 2018, the United States government stood up multiple agencies and task forces to better address supply-chain risk (including the Critical Infrastructure Security and Cybersecurity Agency in the Department of Homeland Security and the Protecting Critical Technology Task Force at the Department of Defense), and the private sector continues to seek a uniform and proven methodology for assessing and monitoring risks in a way that truly minimizes business disruption.

We believe public- and private-sector organizations have struggled to progress significantly on this topic for several reasons:

• Supply-base transparency is hard (or impossible) to achieve. In modern multi-tier supply chains, hundreds or thousands of suppliers may contribute to a single product. Even identifying the full set of suppliers from the raw-material sources to a final assembled system can require a significant time investment.
• The scope and scale of risks is intimidating. The probability and severity of many risks is difficult to ascertain (How likely are certain weather patterns? How often will a supplier’s employee be careless in cybersecurity practices?), and therefore difficult to address, quantify, and mitigate.
• Proprietary data restrictions impede progress. In complex products, Tier 1 or 2 suppliers may consider their supply chains to be proprietary, limiting visibility at the purchaser or integrating-manufacturer level.

Rather than admiring the problem and these difficulties, we suggest organizations begin to tackle issues in a structured way, cataloging and addressing known risks while improving the organization’s resilience for the inevitable unknown risk that becomes a problem in the future.

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A structured approach to supply-chain risk management.

We recommend that organizations start by thinking of their risks in terms of known and unknown risks.

Known risks can be identified and are possible to measure and manage over time. For instance, a supplier bankruptcy leading to a disruption in supply would be a known risk. Its likelihood can be estimated based on the supplier’s financial history, and its impact on your organization can be quantified through consideration of the products and markets the supplier would disrupt. Newer risks such as cybersecurity vulnerabilities in the supply chain are also now quantifiable through systems that use outside-in analysis of a company’s IT systems to quantify cybersecurity risks.

Organizations should invest time with a cross-functional team to catalog a full scope of risks they face, building a risk-management framework that determines which metrics are appropriate for measuring risks, “what good looks like” for each metric, and how to rigorously track and monitor these metrics. This team can also identify gray areas where risks are hard to understand or define (e.g., tiers of the supply chain where no visibility exists). This analysis can dimensionalize the scale and scope of unknown risks.

Unknown risks are those that are impossible or very difficult to foresee. Consider the sudden eruption of a long dormant volcano that disrupts a supplier you didn’t know was in your supply chain, or the exploitation of a cybersecurity vulnerability buried deep the firmware of a critical electronic component. Predicting scenarios like these is likely impossible for even the most risk-conscious managers.

For unknown risks, reducing their probability and increasing the speed of response when they do occur is critical to sustaining competitive advantage. Building strong layers of defense combined with a risk-aware culture can give an organization this advantage.

Managing known risks

Organizations can use a combination of structured problem solving and digital tools to effectively manage their known-risk portfolio through four steps:

Step 1: Identify and document risks

A typical approach for risk identification is to map out and assess the value chains of all major products. Each node of the supply chain—suppliers, plants, warehouses, and transport routes—is then assessed in detail (Exhibit 1). Risks are entered on a risk register and tracked rigorously on an ongoing basis. In this step, parts of the supply chain where no data exist and further investigation is required should also be recorded.

Step 2: Build a supply-chain risk-management framework

Every risk in the register should be scored based on three dimensions to build an integrated risk-management framework: impact on the organization if the risk materializes, the likelihood of the risk materializing, and the organization’s preparedness to deal with that specific risk. Tolerance thresholds are applied on the risk scores reflecting the organization’s risk appetite.

It is critical to design and use a consistent scoring methodology to assess all risks. This allows for prioritizing and aggregating threats to identify the highest-risk products and value-chain nodes with the greatest failure potential.

Step 3: Monitor risk

Once a risk-management framework is established, persistent monitoring is one of the critical success factors in identifying risks that may damage an organization. The recent emergence of digital tools has made this possible for even the most complex supply chains, by identifying and tracking the leading indicators of risk. For example, a large organization operating in a regulated industry identified 25 leading indicators of quality issues at its plants and contract manufacturers, ranging from structural drivers including geographical location and number of years in operation to operational performance metrics, such as “right first time” and deviation cycle times. These 25 indicators were carefully weighted to develop a quality risk-exposure score, and then tracked on a regular cadence.

Successful monitoring systems are customized to an organization’s needs, incorporating impact, likelihood, and preparedness perspectives. Hence, while one organization may track deviations on manufacturing lines to predict quality issues, another may follow real-time Caribbean weather reports to monitor hurricane risk at its plants in Puerto Rico. Regardless, it is critical to have an early warning system to track top risks to maximize the chances of mitigating, or at the very least limiting, the impact from their occurrence.

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Step 4: Institute governance and regular review

The final critical step is to set up a robust governance mechanism to periodically review supply chain risks and define mitigating actions, improving the resilience and agility of the supply chain.

An effective supply-chain risk-management governance mechanism is a cross-functional risk board with participants representing every node of the value chain. It typically includes line managers who double-hat as risk owners for their function, giving them ownership of risk identification and mitigation. In most cases, the risk board  receives additional support from a central risk-management function, staffed with experts to provide additional guidance on identifying and mitigating risks.

An effective board will meet periodically to review the top risks in the supply chain and define the mitigation actions. The participants will then own the execution of mitigation actions for their respective functional nodes. For example, if the board decides to qualify and onboard a new supplier for a critical component, the procurement representative on the board will own the action and ensure its execution.

Additionally, in many organizations the risk board will also make recommendations to improve the agility and resilience of the supply chain, ranging from reconfiguring the supply network, finding new ways of reducing lead times, or working with suppliers to help optimize their own operations. Increasing supply-chain agility can be a highly effective mitigation strategy for organizations to improve their preparedness for a wide range of risks.

Managing unknown risks

Unknown risks are, by their nature, difficult or impossible to predict, quantify, or incorporate into the risk-management framework discussed above for known risks. In our experience, mitigating unknown risks is best achieved through creating strong defenses combined with building a risk-aware culture.

Building strong defenses

Strong defenses, from request-for-proposal (RFP) language to worker training, all contribute to an organization identifying and stopping unknown risks before they affect operations. Exhibit 2 outlines typical layers of defense organizations employ to defend against unknown risks.

Building a risk-aware culture

A risk-aware culture helps an organization both establish and maintain strong defensive layers against unknown risks, as well as respond more quickly when an unknown risk surfaces and threatens operations.

• Acknowledgement. Management and employees need to feel empowered to pass on bad news and lessons from mistakes. This openness fosters an environment where it is okay to voice and deal with issues. Culturally, it is critical that the organization not get discouraged or point fingers when a risk event occurs, and instead works harmoniously towards a rapid resolution.
• Transparency. Leaders must clearly define and communicate an organization’s risk tolerance. Risk mitigation often has an associated incremental cost, and so it is important to align on which risks need to be mitigated and which can be borne by the organization. An organization’s culture should also allow for warning signs of both internal and external risks to be openly shared.
• Responsiveness. Employees need to be empowered to perceive and react rapidly to external change. This can be enabled by creating an ownership environment, where members feel responsible for outcome of actions and decisions.
• Respect. Employees’ risk appetites should be aligned with an organization, so that individuals or groups do not take risks or actions that benefit themselves but harm the broader organization.

The road ahead

Global supply chains are irreversible, as are the supply-chain risks that globalization has brought with it. Our experience suggests that it is critical for organizations to build robust programs for managing both known and unknown supply-chain risks. Leaders should also recognize that risk management is not merely about setting up processes and governance models, but also entails shifts in culture and mind-sets. By employing these approaches, organizations increase their chances of minimizing supply-chain disruptions and crises, while capturing the full value of their supply-chain strategies.

Tucker Bailey and Edward Barriball are partners in McKinsey’s Washington, DC office. Arnav Dey is an engagement manager in the Boston office, and Ali Sankur is a senior practice manager in Chicago.

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Mastering Supplier Risk Management: Essential Strategies

TABLE OF CONTENTS

Introduction

What is supplier risk management, what is the importance of supplier risk management, what roles within a company play a part in supply chain risk management, types of supplier risks, what are supply chain risks, five sources to manage supply chain risks, how do we reduce supply chain risks, benefits of effective supplier risk management, how can technology contribute to supply chain risk management, step-by-step guide to manage supplier risk, best practices for supplier risk assessment, how is supply chain risk management related to sustainability, what are the challenges of supply chain risk management, how procol provide supplier risk management.

In the current era of globalization and complicated supply chains, businesses seeking to maintain resilience and competitiveness must grasp supplier risk management. The complexities of vendor risk management involve anticipating potential vulnerabilities that could impair confidence and disrupt operations in addition to addressing current risks. Organizations can maintain their operational integrity, uphold customer satisfaction, and preserve their brand reputation by using supply chain risk management. By planning forward, businesses are better equipped to handle unforeseen circumstances and stay on a path toward continuous improvement and achievement.

Supplier risk management identifies, evaluates, and controls the risks associated with working with external vendors. It is the risk management plan that a company must implement to safeguard the enterprise from potential threats, including issues with quality, financial losses, and other risks. By promptly minimizing the effect of supplier-related issues, organizations can reduce their exposure to the risk of geopolitical crises, legislative changes, natural disasters, operational disruptions, or financial difficulties.

A key component of any organization’s risk management strategy is supplier risk management, or SRM, especially regarding direct procurement procedures. Coordination with suppliers is required to obtain the goods and supplies required for ongoing operations. The necessity for various suppliers increases as a business grows, bringing additional risks that must be effectively managed.

Vendor risk management intends to reduce any financial losses or disruptions to business operations resulting from problems with third-party suppliers, including insolvency, poor quality, delayed deliveries, or unethical behavior.

Check out some of the reasons why a vendor risk management program is essential for a business:

• Supplier risk management can help identify and mitigate financial loss risks.
• It lets an organization adhere to all regulatory requirements.
• A vendor risk management program enables an organization to identify and stop working with suppliers that may pose a reputational risk.
• Delays in suppliers may lead to delays or shortages of materials; thus, SRM helps find suppliers who consistently deliver high-quality goods and services within reliable timelines.

Supply chain risk management involves various roles in an organization. Specific supply chain risk assessment teams execute and manage the strategies for specifying, assessing, mitigating risk, and monitoring supply chain resilience.

Moreover, the procurement teams are responsible for determining potential suppliers and managing th current ones to ensure they meet delivery standards and quality.

Furthermore, the operation teams manage all the inventory, production, and logistics work, ensuring efficiency and resilience.

IT teams in a company work to implement and maintain technology solutions that support SCRM processes.

Financial difficulties may substantially affect a supplier’s performance capacity, leading to supply chain interruptions. Financial risk management is crucial during the procurement due diligence to reduce such problems. Financial risk analyses are necessary for businesses to avoid issues with current vendors, particularly those with contractual commitments.

Financial Risk:

One of the challenging risks to forecast and manage is economic instability in suppliers, which can put an organization’s operations in danger. Organizations must implement tactics to mitigate these risks, like monitoring suppliers’ financial health and guaranteeing adherence to contractual obligations.

Ethical Risk:

Vendors involved in immoral activities, like using child labor or violating other human rights laws, pose severe ethical threats. These actions may damage a business’s reputation and brand. Strict screening and ongoing supplier monitoring to guarantee adherence to ethical norms are necessary to minimize ethical concerns.

Environmental Risk:

Suppliers’ operations may cause environmental deterioration through pollution and the unsustainable use of resources. Businesses are increasingly expected to answer for their suppliers’ environmental policies.

Political and Economic Risks:

Suppliers based in politically or economically unstable areas might impact the dependability and prices of goods and services. Economic factors can affect suppliers’ pricing strategies and operational capacities, while political developments might result in legislative changes that impact supply chains. To mitigate these risks, supplier base diversification and cautious selection are essential.

Supply risks involve the risks that might come during the business supply chain process. There are two types of supply chain risks, internal and external that may disrupt an organization’s supply chain:

There are external and internal risks to the organization, and these are as follows:

By combining these strategies, businesses may protect themselves from possible disruptions, handle vendor risk management proactively, and keep their supply chains operating smoothly.

Identify: Businesses should look for any potential issues or flaws that could compromise the stability of their whole supply chain.

Assess: After identifying possible vulnerabilities, businesses can assess their likelihood of occurrence and potential effects on the supply chain. Research and data can aid in the assessment of supply chain risk. Quantitative and qualitative approaches, such as scenario analysis, risk scoring, and expert opinion, can help compare historical data and forecasting in the context of current metrics and risk variables.

Mitigate: After identifying and examining the risks, businesses may develop strategies to address the most critical problems swiftly. Risk mitigation techniques include increasing communication, broadening the supplier base, better managing inventories, investing in technology, and creating backup plans.

Monitor: Since SCRM is an ongoing process, businesses should closely monitor supply chain activities and conduct routine reviews of SCRM policies and processes. This strategy may include monitoring KPIs, conducting audits, cultivating a solid rapport with suppliers, and involving stakeholders. The objectives are to limit risk exposure and ensure educated decision-making.

Effective supplier risk management offers significant advantages beyond a business’s operational aspects, influencing profitability, sustainability, compliance, and reputation. These benefits ensure long-term success in today’s complex market environments.

Profitability and Sustainability:

Businesses can reduce costs without compromising quality by optimizing inventory levels and identifying inefficiencies in the supply chain. Over time, these cost savings contribute to the company’s overall financial health, promoting long-term sustainability.

Compliance and Reputation:

Effective management of supplier risks also ensures compliance with relevant laws and industry standards, which is vital in protecting operations and reputations. Transparent, risk-based approaches address the due diligence process by company policies and regulatory requirements. This helps avoid costly penalties and legal issues and prevents reputational harm from negative associations or media coverage of unethical practices within the supply chain.

Technology plays a crucial role in supply chain risk management. Relying on manual processes to manage supply chains and the associated risk leads to a lack of scalability, decreasing businesses’ revenue.

Implementing technologies lets the organization understand supplier risk management, as it can quickly respond to unexpected changes.

Check out below the range of functionalities for organizations that technology provides:

• An advantage of using technology as part of a supplier risk management strategy is that it helps businesses monitor supplier performance in real-time. It provides accurate and up-to-date data that reflects the supplier’s current performance.
• Integrating automation in a supplier risk management strategy lets the organization streamline operations and enhance efficiency by reducing human error.
• Implementing data analytics technology provides an organization with vast amounts of supplier data, enabling it to identify trends and mitigate risk. It is also used to forecast future supplier risk.
• Blockchain technology can increase supply chain traceability and transparency, which will facilitate tracking the flow of products while confirming their legitimacy.
• Cloud computing may offer scalable data sharing and storage solutions that facilitate communication and cooperation at every supply chain step.

An effective vendor risk management program is essential to maintaining an organization’s honesty and profitability. This comprehensive, step-by-step guide will help businesses navigate supplier risk management challenges.

1. Identify Potential Risks

Companies must begin by determining the risks that can appear at various phases of the supply chain. This covers monetary challenges, poor quality control, natural calamities, and reputational risks associated with governance, social, and environmental (ESG) challenges.

2. Assess the Severity and Likelihood of Risks

It is crucial to evaluate risks’ seriousness and probability of occurrence after they have been recognized. This phase assists in prioritizing risks according to their possible impact on the organization by allocating resources for risk mitigation efforts.

3. Develop Risk Mitigation Plans

Organizations should create thorough plans for risk mitigation after they have a firm grasp of the hazards. These plans should cover various topics, including supplier onboarding, teamwork, lifecycle management, and external risks like fraud, theft, and natural disasters.

4. Establish Controls and Processes

Effective supplier risk management requires robust controls and processes. Diversifying supplier bases to minimize reliance on a single source and enforcing stringent compliance checks to guarantee suppliers follow legal and regulatory requirements should reduce the identified risks.

5. Monitor Suppliers for Compliance

It is crucial to monitor suppliers to ensure they follow the rules regarding procedures and controls. This stage entails conducting routine audits, monitoring performance about compliance indicators, and keeping lines of communication open with suppliers to resolve any difficulties quickly.

6. Track and Report on Risk Management Effectiveness

Businesses should monitor and regularly report on the success of their vendor risk management initiatives. This entails evaluating the results of risk mitigation initiatives and modifying action plans as needed to enhance risk management procedures.

An essential part of successful supplier risk management is supplier risk assessment. It covers a range of strategies that companies can use to recognize and manage the risks related to doing business with specific suppliers.

Use of Scoring Systems and Criteria Lists: Compile a thorough list of requirements, including past performance, financial stability, quality assurance, and delivery schedules. Then, use this list to build a scoring system that will enable you to rate each supplier according to the degree of risk they pose. Risk rises with a higher score.

Make a Vendor Risk Assessment Matrix: Using a vendor risk assessment matrix to identify and manage supplier risks systematically. Businesses can use this tool to rate suppliers based on financial stability, delivery dependability, product or service quality, and customer happiness.

Ongoing Monitoring and Data Access: To guarantee that suppliers follow legal requirements, make informed assessments, provide access to supplier data, and carry out ongoing monitoring operations.

Tailored Vendor Risk Assessment Techniques: Not all approaches to supplier risk assessment are practical. When developing your methodology for evaluating vendor risk, consider the number of suppliers and challenges unique to your business.

Collaborative Risk Identification: Other stakeholders, including compliance managers and procurement teams, are involved in the vendor risk assessment. This collaborative approach helps identify several hazards.

• Get Ready for Supply Chain Risk Assessment Challenges: Recognize and prepare for challenges such as suppliers’ reluctance to provide information and the complexity of modern supply chains, which may involve multiple partners in multiple nations.

Sustainability and supply chain risk management have a close connection in several ways.

1. Resilient Supply Chain:

Ethical sourcing, the use of renewable energy sources, waste minimization, and other sustainable practices in the supply chain all help to create a more robust and resilient network. By incorporating sustainability into vendor risk management tactics, businesses can reduce the consequences of interruptions and enhance their long-term sustainability.

2. Environmental Impact Mitigation:

Sustainable supply chain strategies aim to reduce the environmental impact of activities, such as cutting back on waste production and carbon emissions. By controlling supply chain risks related to environmental variables, businesses can minimize adverse environmental effects while ensuring the continuity of their operations.

3. Regulatory Compliance:

Ethical sourcing, labor laws, and environmental protection regulations frequently align with sustainable supply chain strategies. Sustainability standards and laws must be followed to manage risks in the supply chain effectively.

4. Long-Term Viability:

By addressing environmental, social, and governance (ESG) aspects, including sustainability in risk management, promotes long-term viability and competitiveness. Businesses that proactively handle supply chain sustainability risks will be better able to weather changing market and regulatory trends and prosper.

5. Stakeholder Relationships:

Sustainable supply chain methods can improve connections with stakeholders, such as consumers, investors, and communities, by exhibiting a dedication to ethical and responsible business practices. Managing sustainability risks in the supply chain facilitates building stakeholder confidence and trust.

Implementing supply chain risk management (SCRM) takes a lot of work for businesses. Check out the challenges mentioned below:

• Due to the extreme complexity of modern global supply chains, meticulous records of every element during the process are challenging to keep.
• A business can only accurately and effectively analyze risks if it can access reliable data about its suppliers. Some suppliers might hesitate to disclose data due to worries about privacy or the possibility of losing their competitive edge. Furthermore, they might not be open to implementing new procedures or changing current ones, even if they offer sufficient evidence to detect risks.
• Implementing new technology, providing training, and conducting in-person monitoring calls for financial outlays that can prove to be unaffordable for smaller companies. The amount of money needed to maintain due diligence across all stakeholders increases with the number of parties engaged.

Procol is leading the way in changing how we manage suppliers, bringing together efficiency and smart insights. It offers interactive supplier portal software that is easy to use, can handle all the paperwork, create new suppliers, and check their details without you lifting a finger. With smart risk management tools, it can spot potential issues before they happen, make reports showing how your suppliers are doing, and connect with your existing business software to keep things running.

Effective supplier risk management and supply chain risk assessment are protective measures and strategic advantages that can enhance profitability, sustainability, compliance, and reputation. By adopting best practices, organizations can fortify their supply chains against disruptions, ensure adherence to ethical standards, and maintain competitiveness in the complex landscape of modern business.

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Frequently Asked Questions

Do you need some help with something or do you have questions on some features?

What are the five fundamental strategies for managing risk?

• Avoidance: Making the decision not to partake in risky activity.
• Retention: When the costs of mitigation outweigh the possible losses, accept the risk.
• Spreading: To lessen the influence on any resource, distributing risk among multiple parties or initiatives.
• Loss Prevention and Reduction: Putting policies in place to lessen the number and seriousness of losses.
• Transfer: Passing on risk to a different entity, usually by contracts or insurance.

What are the steps involved in an effective risk management process?

The steps for managing risk effectively are:

• Identify the risk.
• Analyze the risk to understand its nature and potential impacts.
• Prioritize the risk based on its severity and the likelihood of occurrence.
• Treat the risk by implementing strategies to mitigate it.
• Monitor the risk continuously to ensure that risk management measures are effective.

Why is Supplier Risk Management important?

Supplier Risk Management is crucial for maintaining supply chain continuity in incidents that could negatively impact business relationships, customer service, and profitability. It also addresses board-level topics such as operational resilience, business continuity, and product lifecycle management.

What are the critical steps in managing risks within the supply chain?

Effective supply chain risk management follows these key steps:

• Identify and document known risks.
• Complete a risk assessment to evaluate the likelihood and impact of these risks.
• Develop a strategy to mitigate identified risks.
• Create a plan to manage the risks.
• Continuously monitor and refine the risk management process to improve efficiency and effectiveness.

What is Supplier Risk Management (SRM)?

Supplier Risk Management (SRM) identifies, analyzes, and addresses the risks of working with third-party suppliers. These risks include data breaches, operational failures, and other business disruptions that may affect an organization’s ability to deliver products and services to its customers. A supply network is generally described as the series of steps that are required to create a product or good.

What are the critical elements of a risk management framework?

A comprehensive vendor risk management framework includes the following components: Risk Identification: Detecting and describing risks that could affect the organization. Risk Measurement and Assessment: Evaluating the risks to determine their magnitude and potential impact. Risk Mitigation: Developing strategies to reduce the likelihood and impact of risks. Risk Reporting and Monitoring: Keeping track of risk exposure, activities, and progress in mitigating risks. Risk Governance: Establishing policies and procedures to manage risks effectively across the organization.

How can organizations identify supplier risks?

Organizations can identify supplier risks by evaluating potential suppliers’ inherent risks, considering factors like financial stability, operational performance, compliance, and external risks. Undertaking a supplier risk assessment is crucial for understanding the threats posed to the supply chain.

Why is Data Analytics important in Supplier Risk Management?

Advanced supplier data analytics provides organizations with vast amounts of supplier data to identify trends and use these insights to mitigate risk. It can also forecast future supplier risk based on previous performance data, ensuring proactive risk management.

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Five Cybersecurity Challenges in Supply Chain Risk Management

• August 16, 2024

In an increasingly interconnected world, the supply chain has become a critical area of focus for cybersecurity. As companies rely on a vast network of suppliers, partners, and service providers, their exposure to cyber threats grows exponentially. Effective Supply Chain Risk Management (SCRM) now requires a robust approach to identifying and mitigating cybersecurity challenges. This article explores five key cybersecurity challenges that companies face in managing supply chain risks .

1. Third-Party Vendor Risks

One of the most significant cybersecurity challenges in supply chain risk management is the risk posed by third-party vendors. Companies often work with numerous suppliers and service providers, each of which may have access to sensitive data or systems. If a third-party vendor’s cybersecurity measures are inadequate, it can become a weak link in the supply chain, exposing the entire network to potential cyberattacks.

Key Concerns:

• Data Breaches : Vendors with poor data security practices can inadvertently leak sensitive information, leading to data breaches.
• Access Control : Inadequate access controls at third-party vendors can result in unauthorized access to critical systems and data.
• Compliance Issues : Failure of vendors to comply with cybersecurity regulations can lead to legal and financial repercussions for the partnering company.

To mitigate third-party vendor risks, companies must conduct thorough due diligence, implement strict access controls, and regularly assess the cybersecurity posture of their vendors.

2. Lack of Visibility and Transparency

Another major challenge in supply chain cybersecurity is the lack of visibility and transparency across the entire supply chain . Companies often have limited insight into their suppliers’ cybersecurity practices, making it difficult to assess risks accurately.

• Hidden Vulnerabilities : Lack of visibility into the cybersecurity measures of lower-tier suppliers can leave companies exposed to hidden vulnerabilities.
• Inconsistent Security Standards : Suppliers may adhere to different cybersecurity standards, leading to inconsistencies and potential security gaps in the supply chain.
• Difficulty in Incident Response : Without clear visibility, identifying the source of a cyber incident within the supply chain can be challenging, delaying response and mitigation efforts.

To enhance visibility and transparency, companies should implement comprehensive supply chain mapping, require regular cybersecurity audits from suppliers, and establish clear communication channels for reporting security incidents.

3. Increasing Complexity of Supply Chains

Supply chains have become increasingly complex, involving multiple tiers of suppliers spread across different geographic locations. This complexity introduces a higher risk of cyber threats, as the attack surface expands with each additional supplier and system integrated into the supply chain.

• Expanded Attack Surface : A more complex supply chain offers more entry points for cyber attackers, making it harder to secure the entire network.
• Difficulties in Coordinating Security Efforts : Coordinating cybersecurity efforts across a complex, multi-tiered supply chain is challenging, often leading to inconsistencies in security measures.
• Higher Likelihood of Supply Chain Disruptions : Cyber attacks targeting any part of the supply chain can cause widespread disruptions, affecting the entire operation.

To address this challenge, companies need to simplify and streamline their supply chains where possible, establish clear cybersecurity protocols, and ensure consistent security practices across all tiers of the supply chain.

4. Insider Threats

Insider threats pose a significant challenge to supply chain cybersecurity, as they involve individuals within the organization or its suppliers who misuse their access to compromised systems or data. These threats can be particularly difficult to detect and mitigate because insiders are often trusted with legitimate access to critical systems.

• Malicious Insiders : Employees or contractors with malicious intent can exploit their access to steal sensitive information or sabotage systems.
• Unintentional Insider Risks : Insiders may inadvertently cause security breaches through negligence or lack of cybersecurity awareness.
• Supply Chain Insider Threats : Employees of suppliers or vendors with access to the company’s systems or data can also pose significant risks.

To mitigate insider threats, companies should implement robust access controls, conduct regular employee training on cybersecurity best practices, and monitor for unusual activity that could indicate insider threats.

5. Supply Chain Data Integrity

Maintaining data integrity across the supply chain is crucial for ensuring the accuracy and reliability of information. However, cyber attackers often target supply chain data to manipulate or corrupt it, leading to significant operational disruptions, financial losses, and reputational damage.

Data Tampering

Cyber attackers may alter or manipulate data at any point in the supply chain, leading to incorrect decisions or actions.

Loss of Trust

If data integrity is compromised, it can erode trust between partners and stakeholders within the supply chain.

Operational Disruptions

Corrupted data can lead to operational inefficiencies, product recalls, and supply chain disruptions.

To protect supply chain data integrity , companies should implement strong encryption practices, use blockchain technology for secure data sharing, and regularly verify the accuracy and consistency of supply chain data.

Cybersecurity in supply chain risk management is a multifaceted challenge that requires a proactive and comprehensive approach. By addressing the risks posed by third-party vendors, improving visibility and transparency, managing supply chain complexity, mitigating insider threats, and ensuring data integrity, companies can better protect their supply chains from cyber threats. As supply chains continue to evolve, so too must the strategies used to secure them, ensuring that companies can operate safely and efficiently in an increasingly digital world.

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Ajinomoto Foods North America transforms its supply chain through a logistics and operations overhaul.

In today’s rapidly evolving digital world, most executives recognize the importance of embracing digital change; however, new capabilities are often added cautiously and modestly, favoring the enhancement of existing operations over a complete business overhaul.

That has not been the case at Ajinomoto Foods North America (AFNA), which creates and markets foods and spices for consumers under brands such as Ajinomoto, Tai Pei, José Olé and Hondashi. During the COVID-19 pandemic and its aftershocks, executives at AFNA were forced to confront a landscape of disruption: whiplashing consumer preferences, supply chain disruptions, and rising freight and warehousing costs. Understandably, they were initially focused on getting through the crisis — yet instead of trying to achieve “back to normal,” they aspired to transform not just one initiative or one function, but the entire organization.

At the beginning, supply chain consultants with Ernst & Young LLP (EY) conducted “art of the possible” sessions around generating revenue, avoiding costs and saving in supply chain planning. That led to a supply chain assessment that showed great potential for improvement within logistics, adding technology and digital support for greater inventory visibility and optimal deployment, with near-real-time tracking and carrier oversight. New transportation management infrastructure would help build multi-stop and multimodal shipments, auto-select the right carriers, and address cost distribution and invoice verification.

And that was only the beginning of a three-year journey founded on value and trust. Today, AFNA has evolved its supply chain from end to end, making it the standout region for the global Ajinomoto parent company, based in Japan. From planning to logistics, processes have been streamlined and automated wherever possible, digital capabilities have been enabled, and now artificial intelligence (AI) and machine learning are redefining what’s possible, holistically introduced through the lenses of people, process and technology.

“AFNA’s optimized supply chain can now do much more — and do it faster,” said Srini Muthusrinivasan, EY Technology Leader. “EY was pleased to assist AFNA throughout their logistics transformation and believes the savings and efficiencies achieved will resonate for the organization long into the future.”

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AFNA optimizes its logistics with innovative technology to better serve thousands of locations.

As the COVID-19 pandemic abated, AFNA faced increasing freight and warehousing costs, adding urgency to the project. Executives were looking to lower inventory while improving service and reducing the cost to serve. With those goals in mind, EY’s digital efforts with AFNA spanned the entire supply chain , broadly encompassing:

• Inventory optimization, with plans for deployment based on each product, distribution center, weekly forecast, production schedules, inventory policies and consumer requirements
• Planning that responds to production output compared against the plan and deployment recommendations adjusted accordingly, if necessary
• Load building with recommendations for optimal shipments based on parameters such as weight, pallet, volume and inventory position/requirements
• Process improvement centered on inventory management, order management, demand planning, and sales and operation execution design and implementation

EY first signed on to help achieve quick wins in distribution resource planning and develop a roadmap for a long-term transportation transformation. An initial logistics assessment identified opportunities to reduce costs and improve operations through Blue Yonder , an EY alliance partner whose software synchronizes forecasting and planning to warehousing, transportation and order fulfillment. The deployment was significant, involving over 550 finished goods produced at nine plants and over 25 co-packers, to 34 distribution centers that serve about 1,300 ship-to-customer locations.

Blue Yonder, based in the cloud, works seamlessly with AFNA systems while bringing a consumer products sector focus through templates. It helps plan how products should be sent to each distribution center or warehouse to meet consumer demand, and from there, shipments are tracked until they arrive at each grocery store. The EY team’s experience helped fast-track implementations with an eye toward the entire supply chain while standardizing processes.

Along the multiyear journey with AFNA, EY consultants notched quick wins — for instance, by realigning warehouses to customer demand better. And to right-size inventory, our consultants brought in policies we’ve defined based on real-world engagements with some of the world’s biggest companies, including a nine-point segmentation plan.

Success built upon success along the way, and another quick win focused on acquiring and locking in freight rates in softening truckload and intermodal markets. Just within trucking, EY recommendations consolidated the list of carriers AFNA was using from over 100 to 60 for outbound and inbound, a 40% reduction, which streamlined the distribution and receiving process for 9 AFNA plants, across over 1,000 transportation lanes and 20 co-packers.

The most recent logistics transformation achievement for AFNA involved upgrading its transportation management system with an innovative database management platform through which the company could better manage data, plan orders and shipments, audit and pay invoices, and analyze performance with metrics. AFNA had been using emails and PDFs in its logistics, but through an electronic document interface the company gained a seamless, trackable system for internal and vendor communications, and EY helped onboard carriers to the system.

Casting aside its spreadsheet-driven manual processes, AFNA gained a tremendous boost in productivity. Planners received an actionable dashboard of KPIs with one click instead of 20, improving their sales and operations execution, and saving a tremendous amount of time. The team had always been in reaction mode based on two weeks of orders. Now, they are equipped with a system that automatically recommends where to deploy products — based on business-defined rules, prioritized by customer orders and accounting for forecast demand — with complete visibility into customer preference changes and recommendations. Creating deployment orders now require just one quick approval click.

“Packing recommendations and load consolidations no longer rely on guesswork, because automation accounts for physical dimensions and weight,” said one logistics coordinator. “Building my loads today took me 3.5 hours instead of 2 days; that’s a lot of time saved in my day I can use to pack more loads and boost my productivity.”

Today, warehouse recurring fees and costs to redeploy products to other distribution centers have been slashed by up to 50%. Inventory write-offs have dropped by up to 40%, while on-time delivery performance has climbed. AFNA is now more likely to have the right product, at the right place, at the right time, which ultimately helps the organization serve their valuable consumers even better.

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Empowered employees carry AFNA into the future of sustainable foods

Cost savings can be put toward new innovations to create lasting change for customers.

To date, EY has helped AFNA save about $40 million, with an additional $23 million estimated through April 2026, across every functional area touching the supply chain, from planning to logistics.

To sustain the change in ANFA’s newly modernized logistics infrastructure, EY hosted train-the-trainers and created employee playbooks so that employees across the organization adopted the new technology platform and ways of working. Thousands participated, which drove alignment from the bottom up and further enabled AFNA to optimize their operations across freight, delivery and sales — all through the power of their people.

“While technology played a key role, it is to AFNA leadership’s credit that they recognized how people, process and technology interplayed, and how advancements in one domain can be carried forward into another,” said Oksana Chausova, the EY Coordinating Partner for AFNA. “Their supply chain is on its way to becoming best in class thanks to their improved systems and empowered employees, and the global Ajinomoto organization is seeing improvements that could be replicated across their other regions.”

The evolution for AFNA continues. The organization’s upgraded transportation management system (TMS) can now better manage data, orders, shipments, tracking and payment, which has freed up resources for AFNA to invest in new AI innovations and capabilities , which will help the company become even more self-sufficient in areas such as route optimization, metrics tracking, food production and processing.

“Thanks to our logistics transformation with EY, AFNA is now better prepared for the future because we have digitized our planning and operating model we can effectively get our sustainable products to market,” said Gema Verdin, Ajinomoto Foods Global VP of Supply Chain Management Planning. “Our newly modernized supply chain brings us one step closer to achieving our mission to help customers ‘eat well and live well.’”

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Operational decisions of construction and demolition waste recycling supply chain members under altruistic preferences.

1. Introduction

2. literature review, 2.1. studies on green demolition technology, 2.2. studies on altruistic preferences, 2.3. studies on the reciprocal altruism theory, 2.4. studies on operational decisions in a cdw recycling supply chain, 3. problem description and relevant assumptions, 4. model developed and solved, 4.1. optimal solutions under non-altruistic model, 4.2. optimal solutions under recycler altruistic model (r), 4.3. optimal solutions under remanufacturer altruistic model (m), 4.4. optimal solutions under mutual altruistic model (mr), 5. analysis of propositions, 6. numerical simulation, 6.1. influence of altruistic preference degree on supply chain members’ operational decisions under unilateral altruistic model, 6.2. influence of altruistic preference degree on supply chain members’ operational decisions under mutual altruistic model, 6.3. comparison of green dismantling technological level under different altruistic models, 6.4. comparison of supply chain members’ utility under different altruistic models, 6.5. summary of comparative differences in different altruistic models, 7. conclusions and management insights, 7.1. conclusions, 7.2. management insights, author contributions, data availability statement, conflicts of interest.

• Proof of profitable altruistic cooperation intervals.
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Share and Cite

Zhu, J.; Zhang, H.; Chen, W.; Li, X. Operational Decisions of Construction and Demolition Waste Recycling Supply Chain Members under Altruistic Preferences. Systems 2024 , 12 , 346. https://doi.org/10.3390/systems12090346

Zhu J, Zhang H, Chen W, Li X. Operational Decisions of Construction and Demolition Waste Recycling Supply Chain Members under Altruistic Preferences. Systems . 2024; 12(9):346. https://doi.org/10.3390/systems12090346

Zhu, Junlin, Hao Zhang, Weihong Chen, and Xingwei Li. 2024. "Operational Decisions of Construction and Demolition Waste Recycling Supply Chain Members under Altruistic Preferences" Systems 12, no. 9: 346. https://doi.org/10.3390/systems12090346

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