The problem of visibility of business processes and the handling of unexpected events, portrays the current challenges involved in supply chain management. The purpose of this thesis is to analyze the sap event management software and its ability to mitigate risks and issues involved in supply chain management. More so, the contribution of SAP EM to the effective functioning of a company in its supply chain network environment will be described. This Thesis is a literature research work, being done as a partial prerequisite for obtaining a Master of Art in Supply Chain Management at the Fulda University of Applied Sciences.
This thesis will strive to answer the following questions: How sap event management tool helps in managing risk in supply chain management? How does SAP event management help companies to handle the challenges of today´s business environment? Whether SAP event management is a type of track and trace instrument or not?
Table of content
LIST OF FIGURE
LIST OF TABLE
LIST OF ABBREVIATION
ABSTRACT
1 INTRODUCTION
1.1 Problem
1.2 Relevance of the subject
1.3 Purpose and goals of thesis
1.4 Method of thesis
1.5 The structure of the thesis
2 WHAT IS SUPPLY CHAIN MANAGEMENT?
2.1 Definition of Supply Chain management
2.2 Goals and objectives of supply chain management
2.3 Factors that influence the efficiency of modern supply chains
2.4 Current trends and opportunities in logistics and supply chain management
2.5 Supply Chain visibility
2.6 Importance of visibility in the Supply Chain management
3 RISK CONCEPT AND SUPPLY CHAIN RISK MANAGEMENT
3.1 Risk
3.2 Types of supply chain risks
3.3 Reasons for vulnerability in modern supply chains
3.4 Business processes as drivers of supply chain risk
3.5 Supply Chain risk management
3.6 Functions and tasks of SCRM
3.7 Objectives of supply chain risk management
3.8 The Importance of Supply chain risk management
3.9 The supply chain risk management process and the Phases of the inter-organization supply chain risk management
3.10 Inter-relationship between SCRM, SCEM and SAP EM
4 SUPPLY CHAIN EVENT MANAGEMENT
4.1 Explanation of supply chain event management
4.2 Goals and objectives of supply chain event management
4.3 Functions of supply chain event management
4.4 Benefits of supply chain event management
4.5 Necessary components for supply chain event management
4.6 Properties of Supply chain event management
4.7 Constituents of supply chain event management
4.8 Types of events in supply chain event management
4.9 Application spectrum of supply chain event management in companies
5 SUPPLY CHAIN MANAGEMENT SOFTWARE
5.1 SAP
5.2 SAP Business Suite
5.3 sAp scM
5.4 The Structure of SAP SCM
5.5 Important components with which SAP SCM complements SAP ERP
5.6 Functions of SAP SCM
5.7 Overview of my sap SCM
6 SAP EM
6.1 Definitive explanation of SAP event management
6.2 Historical development of sap event management
6.3 Basic terms used related to SAP Event Management
6.4 Modes of usage for sap event management
6.5 System architecture of SAP Event management
6.6 Overview of the Functions of sap EM
6.7 Visual business
6.8 System landscape
6.9 Business processes of SAP event management
7 CASE STUDY OF IMPLEMENTATION OF SAP EM AT BASF COMPANY
7.1 Brief company overview
7.2 Initial situation: How BASF used SAP EM to handle risk in its supply chain
7.3 Scenario Description
7.4 Challenge for the chemical industry
7.5 Critical analysis of the implementation of SAP event management at BASF
8 CASE STUDY IMPLEMENTATION OF SAP EM AT DELAVAL
8.1 Brief company overview
8.2 Initial situation
8.3 Objective for the SAP EM implementation
8.4 Results of SAP EM implementation at Delaval
8.5 Benefits Delaval achieved after the SAP EM Implementation
8.6 Challenges faced by dairy Farmer manufacturers and the customer-oriented goals that Delaval strives to ACHIEVE WITH THEIR SERVICES
8.7 Critical analysis of the SAP EM implementation at Delaval
9 HOW SAP EM HANDLES THE SC CHALLENGES IN TODAY'S BUSINESS ENVIRONMENT
10. Potential benefit of SAP EM in mitigating risk in supply chain management
10.1. A contrast of the characteristics features and functions of SAP EM and track and trace system
10.2. S.W.O.T Analysis of the implementation of SAP EM at a company
11. CONCLUSION AND OUTLOOK
LITERATURE REFERENCES
APPENDIX
List of Figure
Figure 1 Structure of Master Thesis
Figure 2 An exemplary representation of a Supply Chain
Figure 3 Survey results on relevance of current trends in logistics and Supply Chain Management and the adaptability of firms to these developments
Figure 4 Risks in extended Supply Chains
Figure 5 Survey on the reasons for engaging in SCRM
Figure 6 Structure of the respondent Company groups
Figure 7 Process of inter-organizational risk Management
Figure 8 The interface of Supply chain risk management, supply chain event management and sap event management
Figure 9 Type of Events
Figure 10 SAP Business Suite
Figure 11 SAP’s Supply Chain Event Management Solution
Figure 12 System architecture for SAP Event Management
Figure 13 Structure of the Event Management Server
Figure 14 Supply Chain Structure of BASF
Figure 15 Business challenges XVII
Figure 16 Historical development of the SAP Event Management- functions from 2004
List of Table
Table 1 Typical Applications of Supply Chain Event Management and the main sectors targeted.
Table 2 Technical basics of my SAP SCM
Table 3 Illustration of the Characteristics Features of SAP EM and that of Track and Trace Systems
Table 4 SWOT Analysis for SAP EM Implementation
Table 5 Summary of Supply Chain Risks and their sources XVI
Table 6 Supply Chain Risk Categorization motivated by Supply Chain Organisation XVI
List of abbreviation
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Acknowledgement
My academic journey had been long and full of challenges, nevertheless I thank GOD who helped me throughout the years till this point. My special thanks and appreciations go to Prof. Dr. W. A. and Prof. Dr. H. M., who jointly helped to expand my knowledge in the field of logistics and supply chain management respectively. They birthed in me a passion for Logistics and Supply Chain Management and contributed abundantly to my coming this far. Thank you for enabling my dream of becoming a supply chain manager become a reality.
Moreover, I wish to thank all my course mates with whom I shared a lot of learning experiences and tackled challenging group works and project assignments. I thank you all, I learned from you and I am grateful for the time we shared together in different lectures.
Lastly, my special thanks go to my uncle C. C., who financially sponsored my studies in Germany. Without him, I would not have had the opportunity to study in Germany and attain this master’s degree.
Abstract
The business environment nowadays is characterized and influenced by globalization and the increase of cross-country and cross-continental business activities. Due, to the competitive strive for lower production costs, companies outsource some of their business processes to low-wage countries. The business network of such companies is, thus highly interconnected with suppliers and partners which span different geographical locations and countries. Such globally oriented Companies find, themselves integrated in large ever-growing supply chain networks with other participants on the other side of the globe. The supplier chain participants of such a network, are highly interdependent to one another, therefore efficient collaboration is the key for successful operation in such a complex supply chain network system.
More so, the flow of goods and information in these interwoven supply chain network is affected by a lack of process visibility and the failure to react to unexpected events, which interfere with the smooth running of processes along the supply chain. Furthermore, there is a rising need for compliance regulations and requirements to be fulfilled as products and raw materials cross from one geographical location to another. Thus, there is a need for a tool which is be able to monitor, adjust and control unexpected events and adjust processes in real time. More so, to track and trace product movement in this ever-growing supply chain network. It is imperative for the tool to be able to measure supply chain performance and actively react to disruptions, which attempt to hinder the business process plan. This impending risk is the reason for the creation of the SAP event management software, which is to manage events and processes in the supply chain, by offering complete visibility for end-to-end business processes along the supply chain network among partners beyond the company boundaries. Companies need the ability to swiftly and proactively react to unexpected events in their process plan and handle risks and disruption, before they cause major damages to the company.
Several, companies such as BASF have experienced positive results with the sap event management, because the Sap Event management software helped them, to mitigate the risk from two Hurricanes. BASF was able to adjust its shipping route in real time and inform its customers ahead of time of the occurrences. More so, sap event management also helps companies to apply to compliance regulations. SAP event management is an effective tool for mitigating risks in the supply chain, because compared to traditional track and trace systems, SAP event management can plan, monitor, adjust and measure business processes. Since, the risks eminent in supply chain management are changing rapidly and the business environment is dynamic in nature, it implies that the sap event management tool, has to keep a flexible and customized implementation approach for it to continue to handle the challenges of remedying risk in an ever-changing supply chain networks.
1 Introduction
1.1 Problem
The last few decades have been marked by the breaking off, of trade barriers around the world, thereby leading to increase trade among nations globally. The increase global trade has opened the avenue for companies to source globally to suppliers offering better and cheaper goods and services. Thus, globally oriented companies face the challenge of coordinating and effectively managing all facilities alongside their ever-growing supply chain network.[1] Nowadays, global competition has caused an increase in products with shorter life cycles, continuous increasing customer demand and expectation. Which compels companies to carefully work and invest in the managing of their globally oriented supply chain networks.
More so, the ability to develop supply chains and the technics for managing supply chains have been triggered by increased advancement in communication and transport technology.[2] Companies strive to plan, manage and control their inter-organizational processes in the supply chain in order to reach their objectives, because companies have come to the realization, that they no longer compete with each other but rather supply chain compete with one another.[3] Therefore, when optimization efforts spread along a company's entire value chain, leading to a change in the competitive relationship. A company will operate successfully in a section when it effectively and efficiently cooperates with its value-added partners than with its competitors.[4]
Although, the global sourcing of components and merchandises has significantly gained importance, nevertheless global procurement involves risk that should not be ignored. This supply chain risk is drastically increasing, because goods must overcome different geographical locations to get to their expected locations.[5] It is thus, reasonable that supply chain management aims at creating transparency among all the supply chain participants, which occurs because of the changing the actions of the individual partners and scheduling parameters.[6] In order for companies to have better visibility along their supply chain network, they have to close the gap between planning, execution and evaluation. They must introduce the possibility to adapt plans in real time based on feedback and information received. To achieve this aim, companies must implement integrated software that assist business processes by monitoring supply chain events and informing the right person in case of delay and a critical event. Companies should be able to simulate activities, control processes, measure supply chain activities to adapt business operations for them to be more efficient and effective.[7]
Therefore, the visibility and transparency of goods along the supply chain is of crucial importance because, delayed deliveries could lead to financial losses for the company, due to production still- stand and unsatisfied customers. More so, there is a need for an instrument that would help mitigate the risk involved with the lack of visibility. The tool should be able of managing, monitoring unexpected events, interruptions and business processes along the supply chain as goods and raw materials, transit from one location to another while ensuring that compliance regulations are fulfilled.
1.2 Relevance of the subject
The business world nowadays is characterized, by complex business relationships. Outsourcing is practiced by some companies to the extent, that only the brand name remains in their possession. However, the ability to control business processes and have transparency is decisive to maintain customer satisfaction, by meeting the customer's needs for high service level and high product availability.[8]
Several supply chain problems are due to, a lack of companywide visibility of important and critical logistic processes. Since, bottle necks in the performance process are never eliminated, therefore planning deviations ought to be promptly and quickly recognized in the supply chain, to be able to take counteractive measures. The cross-company visibility of logistic processes, will enable companies to detect disturbances early within the material production and information flow and to take control measures, so that the implementation of the production plan is not threatened.[9]
The challenge of detecting, evaluating and solving the problems that arise in real time, due to deviations occurring in other departments, geographical locations, organizational boundaries and the growing collaborative business partners. SAP takes a critical approach to supply chain visibility for companies to be equipped with the appropriate information in the real context.[10]
Daily, several business processes take place between business partners around the world. To keep an overview of the planned processes, the activities of all participants, the status and the critical events amongst diverse processes in progress, there is a need for an integrative and supporting software which can master the flood of events and critical situations among the uncritical events. That implies to identify planned events as scheduled, to detect disruptions and to manage the business processes by taking measures that mitigate risk in the supply chain.[11]
1.3 Purpose and goals of thesis
The problem of visibility of business processes and the handling of unexpected events, portrays the current challenges involved in supply chain management. The purpose of this thesis is to analyze the sap event management software and its ability to mitigate risks and issues involved in supply chain management. More so, the contribution of SAP EM to the effective functioning of a company in its supply chain network environment will be described. This Thesis is a literature research work, being done as a partial prerequisite for obtaining a Master of Art in Supply Chain Management at the Fulda University of Applied Sciences. This thesis will strive to answer the following questions:
- How sap event management tool helps in managing risk in supply chain management?
- How does SAP event management help companies to handle the challenges of today's business environment?
- Whether SAP event management is a type of track and trace instrument or not?
1.4 Method of thesis
To achieve the main objective of this thesis, which is to analyze the ability of SAP event management to mitigate risks in supply chain management. And to describe how SAP event management helps companies, deal with the challenges of today’s business environment. Finally, to contrast SAP EM and a traditional track and trace system. The following approaches will be used to achieve the goals of the master's thesis:
- A literature research will be done, to highlight current challenges and issues faced by company in managing their supply chain.
- The visibility problem in supply chain management will be discussed with regards to an overview of supply chain event management system.
- Risk management in supply chain management and the categories of Risk will be mentioned.
- The Sap Event management software business solution will be analyzed based on its functionalities and use in supply chain management.
- A Practical case study and best practice implementation of the SAP Event management tool will be described and critically analyzed, with regards to its contribution to supply chain management and creating added value for the corporation.
- A contrast of SAP event management with tracking and trace systems will be illustrated.
- A conclusion would be made, as to whether the sap event management system contributes significantly in mitigating risk and the challenges faced in supply chain management.
Figure 1 Structure of Master Thesis.[12]
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1.5 The structure of the thesis
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The first chapter is the introduction of the thesis whereby the problem statement, that this thesis will strive to answer, and the approach will be explained. The relevance of the chosen topic of the thesis, its purpose and goals will be mentioned. The methodical approach and the structure of the thesis will be illustrated. The forthcoming chapters of the thesis will be organized as follows:
The second chapter will deal with supply chain management. The term supply chain management will be defined, and its objective will be mentioned. More so, the challenges of the business environment that affect, supply chain management will be explained. Furthermore, the current trends and opportunities in logistics and supply chain management will be described. Finally, the importance of visibility in supply chain management will be explained.
The third chapter will deal with the concept of Risk and Supply Chain risk management and the diverse types of risks involved in supply chain. Moreover, the reasons why supply chains are vulnerable to risk will be explained and the business processes, that drives supply chain management will be mentioned. More so, Supply chain risk management will be discussed illustrating its functions, objectives and its process phases. Lastly, a representation of the interrelationship between SCRM, SCEM and SAP EM will be illustrated.
The fourth chapter will discuss supply chain event management. The term SCEM will be explained, the objectives that SCEM pursues will be listed. Moreover, the benefits, functions, properties, constituents and necessary components of SCEM will be described. Finally, the types of events in SCEM and the application spectrum, of SCEM in corporations will be explained.
The fifth chapter will cover a portrait of the SCM software. Firstly, a brief profile of the sap company will be described. Followed by, a description of SAP supply chain management, its structure and components. After which the functions of SAP SCM and the components which complement SAP ERP will be illustrated. Finally, a brief overview of my SAP will be presented.
The sixth chapter will detailing explain the SAP event management software, its historical development and the basic terms used in connection with SAP EM will be defined. The system architecture and an overview of the functions of SAP EM and the functions enabled by integrating SAP EM with transport management will be mentioned. Lastly, the business processes of SAP EM will be explained.
The seventh chapter will deal with the case study, of the practical implementation of SAP EM at the BASF Company. The case study narrative will begin with, a brief company overview followed by the initial situation and a description of the business case scenario of the sap implementation. The challenges faced by companies in the chemical industry sectors will be mentioned. Finally, a critical analysis of the SAP EM implementation, will be carried out based on the case study and the challenges faced by the chemical manufacturing industry.
The eighth chapter will involve a narrative of the SAP EM implementation at Delaval Company. Firstly, a brief overview of the Delaval Company will be illustrated. Followed by the objectives and the initial situation of the sap EM implementation. Thereafter, results of the sap EM implementation will be reported, accompanied by the challenges that dairy farmer’s face and the customer-oriented goals that Delaval is pursuing. Finally, a critical analysis of the SAP EM implementation at Delaval shall be made.
The ninth Chapter will cover, how SAP EM handles the SC challenges in today's business environment? More so, the potential benefits of SAP EM in managing SC risk will be mentioned. Thereafter, a contrast of the characteristic features of SAP EM with the track and trace system will be displayed, followed by a SWOT analysis of SAP EM implementation. Finally, a suggested self-approach of, how the risk management ability of SAP EM could be enhanced will be briefly explained.
The tenth chapter is a conclusion of the master thesis. It will be made based on the literature research and the analyzed results of the illustrated case studies. Thus, the answers to the following questions will be summarized:
- Whether sap event management helps to mitigate the risk in supply chain management?
- Whether sap event management can handle the supply chain challenges in today's business environment or not?
- Whether sap event management is a type of track and trace tool or not? A contrast will be discussed in the case of difference.
2 What is supply chain management?
2.1 Definition of Supply Chain management
Supply chain management refers to the holistic planning, optimization, simulation, material control, information and financial flow from customer to customer and from supplier to supplier along the entire supply chain. To design a time and optimal cost-efficient supplier chain, customers’ needs must be given consideration.[13] The customer's value and their benefits occupies the principal stage of all supply chain activities. More so, not functions, rather processes must be the object of the optimization efforts.[14]
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Figure 2 An exemplary representation of a Supply Chain.[15]
2.2 Goals and objectives of supply chain management
The goals within the supply chain are manifold and weighed differently, depending on the perspective. At time these goals are partly contrary to each other: namely increase of planning security, reduction of costs, improvement of customer satisfaction, flexibility, shortening of throughput times, process optimization, optimization of stock, and capacity utilization.[16]
From a logistics perspective, the goals which supply chain management pursues are as follows:
- It offers customer satisfaction by enabling a high delivery service level
- It prevents out of stock situations and failure of delivery capacity
- It strives to reduce the capital binding inventory stock along the entire supply chain.[17]
- It enables the efficient utilization of resources in the entire supply chain
- Supply chain enables a flexible and timely adaptation to market changes and environmental conditions.
- It allows exceptional circumstances like, demand peaks and disturbances to be mastered.
- Supply chain creates a cost advantage and benefits in the entire value-added chain through coordination and synchronization.[18]
- It designs and operates the physical and material flow of goods within and between companies, ensuring that costs are economized. It thus, operates the associated dispatching and administrative processes in an error-free, fault-tolerant and fast manner.[19]
2.3 Factors that influence the efficiency of modern supply chains
Some of the challenges that supply chain face nowadays are as follows:
2.3.1 Complexity
The diversity of products and the cross-linked structures of supply chain networks, causes complexity in the supply chain. Thus, the decisions made in the supply chain requires a global view, taking every network component into consideration. The longer the length and size of the supply chain network, the higher the complexity that exist in such a supply chain network.
2.3.2 Lack of transparency
A lack of transparency in the supply chain is the result of the difficulty, of foreknowing the illustration of systems in the supply chain. Thus, processes are not well defined and cannot be illustrated in accurate value. If the knowledge of the interconnections between, the supply chain networks was known, then the trends in the supply chain could be understood and decision making would be easier.[20]
2.4 Current trends and opportunities in logistics and supply chain management.
There have been drastic transformations in the past years, in logistics and supply chain management spanning from, classical businesses with a functional orientation, to globally integrated business networks. Supply Chain management has brought a remarkable contribution to the competitiveness of companies. Literature research and interviews with experts, have revealed some core trends in logistics and supply chain management. These trends are subdivided as follows:
2.4.1 Exogenous trends
These refer to external developments driven by, the company itself likely with other companies. Exogenous trends could be influenced by companies in a slight extent, therefore corporations must find internal measures to adapt to the effect of these trends. The external developments that companies must deal with are as follows.[21]
a) Government regulations and compliance
The action framework of SCM is defined by government regulations. The political climate and the policies passed in countries, influence SC activities and the developments in SCM. Companies must adhere to the laws, guidelines and compliance regulations that apply to them, along their supply chain network.
b) Risk and interruptions
Risks influences logistics and supply chain management in diverse ways. The unexpected threats posed by natural disasters, coupled with the volatility of the global economic and political situations can cause failure at a given point in the supply chain. This could lead to production still stand. Thus, such interruptions must be recognized at an early stage for measures to be taken against them.
c) Complexity
Complexity is caused by the increasing amount of product parts, services and suppliers involved in the supply chain network. The supply chain network participants need to collaborate, with each other to manage the changes and development in the supply chain over time. The relationship between the supplier chain participants is, not linear and its complexity increases exponentially with the number of partners and networks joined to the supply chain.[22]
d) Sustainability
It is required for companies and supply chains to consider, the ecological and social consequences of their actions. Companies are to communicate their effective dealing and sustainable actions to their stakeholders in a sustainability report published yearly.[23]
2.4.2 Endogenous trends
Endogenous trends refer to internal trends, which a company can control. However, if ignored endogenous trends can put a company under pressure. The internal developments that companies are facing today are namely:[24]
a) Digitalization of business processes
The digitalization of business processes is increasingly supported by information, communication and data processing systems. Digitalization is now the vehicle used to, exchange data among all stages of the value chain. Well defined, interfaces or uniform systems are needed, for the data exchange among the supply chain participants to be effective.
b) Transparency in the supply chain
Transparency has always been highly prioritized, in diverse stages of the supply chain. The Digitalization of business processes in SC, opens new possibilities for transparency to be attained in supply chain. Transparency in supply chain management, has emerged to be the most important trends in logistics and supply chain management.
c) Network and collaboration
Companies constantly network with other companies, to improve their competitive edge and their market shares. Collaboration is not only necessary for partners within a supply chain, but more so the exchange with participants from the same supply chain level is imperative. Networking and collaborating has gained importance, enabling companies to understand the need to build dynamic networks that react flexibly to changes, disruptions and adjustments within their supply chain.[25]
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Figure 3 Survey results on relevance of current trends in logistics and Supply Chain Management and the adaptability of firms to these developments.[16]
Figure 3 above illustrates, the results of a survey conducted by the BVL between mid-July and end of August 2016 by questioning 1351 logistics and supply chain experts.
The results of the survey above indicate, that logistic and supply chain experts recognize, the importance for companies, to adapt their operations to handle both the endogenous and exogenous trends. 49% of the respondents recognized, that government regulations pose a need for adaptability. While 37% of the interviewed experts, recognize the relevance of risks and 39% recognize complexity as a need for companies to adapt to. The reason for these results could be, because the business activities of most companies span beyond their natural borders and their goods and raws materials cross over diverse countries before reaching their production plants or their end-customer. These goods and raw materials are subjected to unexpected events, interruptions and risks on their way, which could disrupt the smooth running of the planned business processes. However, 55% of the respondent recognize the need for collaboration and transparency to adapt these current trends. The risks incurred by these goods and raw materials even increases, the larger the supply chain network through which the products and materials go through. Therefore, it is imperative for companies to make use of tools that, could help them mitigate risk, by monitoring, adjusting and managing their business processes. Moreover, so that they can also fulfill compliance regulations as their good and raw materials cross the globe. This increase relevance in the awareness for companies to adapt in managing risks, increasing complexity and fulfilling government regulations corresponds to the goals of this thesis.
2.5 Supply Chain visibility
Visibility for a company means its ability to see, the occurrences and events taking place along its entire supply chain. Information sharing among the supply chain participants is one of the prerequisite for visibility to occur in the supply chain. The more accessible information is to the supply chain participants, the greater the visibility. Thus, the better the decisions that would be made, based on that available information.[27] Supply chain visibility is a crucial element used to manage risk in supply chain management. There are three approaches of visibility that give a complete perspective on supply chain namely:
2.5.1 Process visibility
It helps the milestones of actual events to be monitored. The alerting and resolution of events linked to it, also help in the collaboration and coordination with partners in the supply chain.
2.5.2 Product and asset visibility
It ensures the responsibility for the compliance of products, that are sent from the manufacturer to the customer.
2.5.3 Performance visibility
It enables the performance of the supply chain to be measured with the aid of KPIs and thus, it closes the feedback gab that exist between the targeted and the actual data.[28]
2.6 Importance of visibility in the Supply Chain management
It is difficult to effectively manage supply chain risks, without a firm awareness of the events taking place along the supply chain network. Visibility is an essential component of supply chain risk management and it is important for a partial visibility to be obtain in the following areas:
- Updated status of the supplier's financial state
- The performance and the geographical location of the sub tier suppliers
- Current changes in customer and supplier markets
- Current updates on hazardous risks like conflicts and critical weather conditions
- Real time location of products and location of materials
- Predicted and current operational performance of key tier-one suppliers
- Movement of employees worldwide.[29]
According to a survey conducted by the Aberdeen group, 77% of companies don’t have a clear visibility of their goods. At least they noticed an increase in the transparency of their stocks, in production, warehouse and on the road. Therefore, the survey further reveals that the area in which managers expect to invest in the next 2 years, it's to increase the visibility of their supply chain network.[30] The importance of visibility cannot be underestimated for the following reasons:
- Designing processes in a way that helps a company to, have visibility in its supply chain, is an essential aspect of building continuity into the future of the company
- Visibility of the supply network can help a company, to anticipate disruptions and mitigate their effects when they occur. The better the visibility a company has, the more its customers will trust it, because the company can proactively act in case of disruptions.[31]
- A better visibility up and down the supply chain helps, companies to adjust plans based on feedback and information received in real time. This is achieved through the implementation of integrated software that support major business processes such as monitoring.[32]
- The absence of visibility in a supply chain and a lack of access to relevant information, in real time prevents, accurate analysis and informed decisions to be made. Even when risks are known, a lack of access to relevant data makes, it difficult to incorporate the risks in the decision making.[33]
Chapter summary / interim conclusion: In the Chapter two, supply chain management was defined as a process for planning, optimizing and controlling the flow of goods and services along the entire supply chain. Its goal is to prevent out of stock situation and to maintain customer satisfaction. Nevertheless, for this objective to be achieved there is a challenge of lack of transparency and the increasing complexity of the supply chain network. Thus, supply chain visibility is of paramount importance to anticipate disruptions and to mitigate risks in the supply chain. More so, the survey on the current exogenous and endogenous trends in supply chain management, reveals the importance for companies to adapt to risks, increasing complexity and comply to increasing government regulations. More so, companies must strive for collaboration to mitigate risk in their growing complex supply chain networks. Thereby, ensuring transparency and maintaining sustainable business practices in their supply chain network, to secure their corporate image and maintain their supply chain advantage. Which is nowadays a strategic competitive tool, that globally oriented companies should take advantage of.
The previous chapter explained the effect of, the complex nature of supply chain networks and the increasing risks that globally oriented companies are facing. Given that a lack of process visibility and in effective collaboration in the supply chain network are the reasons for supply chain disruptions. The proceeding Chapter will illustrate the types of Risk prevalent in supply chain management and the supply chain risk management process so that, a better understanding of how SAP event management helps to mitigate risks in supply chain management will be attained.
3 Risk concept and supply chain risk management
3.1 Risk
The word risk has its origin from the Italian root word “risicare”, meaning to dare. However, with the passing of time, the term risk carries a different meaning to different people, depending on how they perceive the world. Choice is a key component of risk. Risk involves the actions we dare, to take which depend on how free we are to make choices. More so, risk involves the hope of gain and the possibility of loss.[34] Risks that occurs, in the supply chain can be sub-divided into the following categories as illustrated in Figure 4.
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Figure 4 Risks in extended Supply Chains.[35]
**Table: Categories of risks in supply chains (see Appendix) **
3.2 Types of supply chain risks
a. Supply Risk: It refers to the possibility of an interruptive event related to, the inbound supply which may cause disruption from the supplier or supply source, leading to a company being unable to satisfy its customer's demand within the predefined costs. Supply risk exist on the course of moving the materials from the supplier's sub-suppliers to the main firm. Supply Risk involves supplier reliability, dual versus single sourcing, make or buy decisions, decentralized versus centralized sourcing and security issues.[36]
b. Operational risk: it involves the incident of an event linked to the main company that, influences and disrupts the company's internal processes preventing, them from producing goods and services, quality and well-timed production and the profitability of the company. Operational risk sources lie inside the company and could be triggered by a breakdown in core processes, insufficient processing capability or manufacturing.
c. Demand risk: is the likeliness of an occurrence linked to the outbound flow of goods, which could influence the probability for customers to, place their order at a given company. Moreover, a deviation in volume of the products, that the customers requires. The sources of demand risks lie along the path of movement of the goods from the main company to the customer's customer.
d. Security risk: Information security risk refers to the menace from an unknown secondary entity, who might not necessarily be, a member of the concerned supply chain. The aim and motivation of the third-party agent is, to lay hands on the company's intellectual property and thereby destroy and upset the main company's business operations. The origin of information security risk includes, system hacking, company employee leaking crucial data to competitors, weak security or firewall of members of their supply chain.[37]
**Table: Sources of Risks in the supply chain (See Appendix) **
3.3 Reasons for vulnerability in modern supply chains
Supply chains nowadays are vulnerable to disruptive and unanticipated events, which could lead to devastative consequences. The following reasons account for the vulnerability of supply chain networks namely:
- SC networks are long with lesser visibility thus, decision making is slower with regards to disruptions.
- The extensive nature and size of the SC networks, creates more points for possible disruption to occur in the SC network.
- Attempts made for local optimization creates problems and disruptions in other parts of the supply chain network.[38]
The Canfield school has identified the cause for the increasingly new risks in supply chains to be due to:
- The Globalization of supply chains
- The Reduction of inventory holding
- The Centralization of distribution
- The Reduction of the supplier base
- Outsourcing
- The Centralization of production.[39]
3.4 Business processes as drivers of supply chain risk
There are diverse processes that, enhance and contribute to the risks that supply chains face. These business process include the following:
a. Sourcing in Low cost countries
The quest for companies to produce their products in low-cost countries and locations, brings alongside challenges such as long lead times, exposure to political, regulatory, security and currency risks. which mostly nullify most of the cost savings. Companies often pursue, the cost to be saved in these low labor countries and become blinded-folded from perceiving the risks involved in such an endeavor.
b. Outsourcing
Companies are continuously outsourcing their production processes and business operations, to improve their service level and operating performance. Nevertheless, outsourcing restraints supply chain coordination and limits supply chain visibility.
c. Lean and just-in-time production
Business operations are streamlined via lean and just-in time production processes. But, these strategies do not accommodate, the availability of buffer stock. Thus, the risk of out of stock situation and supply chain disruptions increases in this a case, due to supply and delivery setbacks. Most, automobile manufacturers are giving their just-in-time manufacturing concept a second thought, because of the devastating impact that it brings along.
d. Supply base rationalization
Many companies to cutoff the cost of managing their large supplier base, turn to reduce their number of suppliers. However, streamlining the supplier base to only a single supplier, increases the risk that in the case, where the supplier is unable to supply or to being unable to meet the production requirement.
e. Unaligned business processes
A lack of communication and the unalignment of business processes, will handicap a company's business strategy. This is because poor structural organization in a company, increasing combative cultures, and supply chain tools that don’t enhance communication. At times, departments are not aware of, what other departments in the same company are working on, and at times the departments pursue goals which conflict with each other.[40]
3.5 Supply Chain risk management
Supply chain risks refers to the possible occurrence of an event, or the failure to grasp an opportunity within a supply chain. Which could lead to a monetary loss for the company.[36]
Supply Chain risk management is a section of supply chain management, which deals with strategic measures, designs and software technologies that strive to mitigate risk in supply chain management.[37] It is the management of supply chain risk through coordination or collaboration among supply chain partners to ensure profitability. SCRM is characterized by a cross-company orientation, with the goal of identifying and reducing risk, not only at the company level, but with a focus on the entire supply chain. Moreover, SCRM enables strategies to be implemented for various risks to be managed within the supply chain. This is done on a continuous basis to reduce the devastating impact of liable risks.[38]
3.6 Functions and tasks of SCRM
Supply chain risk management comprises, of the following functions and tasks:
- Defining and adhering to a strategic direction with regards to intentions and goals.
- Building a system-supported supply chain risk management
- Developing crisis management for existing supply chain events
- The inventory and assessment of power nodes and risks according to the quantitative requirements
- Determination and implementation of appropriate measures against risks in terms of acceptance, reduction, and avoidance.
- The continuous monitoring of the performance level, risks and measures, based on quantitative and qualitative information and methods.[41]
3.7 Objectives of supply chain risk management
- SCRM pursues the objective of securing enterprise existence, so that its participation in a supply chain does not endanger the existence of the company.
- SCRM intends to prevent deviations from, the supply chain's objective of supplying the end customer, in time, in costs and in quality.
- SCRM offers competitive advantage, since the attractiveness of a company for customers and suppliers can increase through a cross-company risk management.[42]
- SCRM contributes to the decision- making processes in most functional areas within a business e.g. marketing decisions for product delivery lead times
[...]
[1] Cf.: Chopra, S. and Meindl, P. (2004), P.65
[2] Cf.: Simchi-levi, D. and Kaminsky, P. and Simchi-levi, E. (2003), P.1
[3] Cf.: Seuring, S. and Goldbach, M. (2002), P. 274
[4] Cf.: Arndt, H. (2010), P.48
[5] Cf.: Corsten, D. and Gabriel, C. (2004), P.38-39
[6] Cf.: Gronau, N. (2010), P.254,255,258
[7] Cf.: Ijioui, R. and Emmerich, H. and Ceyp, M. (2007), P.71-72
[8] Cf.: Ijioui, R. and Emmerich, H and Ceyp, M. (2007), P.71
[9] Cf.: Eftig, M. and Hofmann, E and Stolzle, W. (2013), P.322
[10] Cf.: Ijioui, R. and Emmerich, H. and Ceyp, M. (2007), P.72-73
[11] Cf.: Hege, B. and Kappauf, J. and Lauterbach, B. and Overgoor, F. and Uljee, R. (2010), P.15
[12] Cf.: Hausladen, I. (2011), P.18
[13] Cf.: Arndt, H. (2010), P.48
[14] Cf.: Gronau, N. (2010), P.254
[15] Cf.: Schmidt, C. and Brosze, T. (2009), P.122-123
[16] Cf.: Krampe, H. and Lucke, H. (2006), P.99
[17] Cf.: Krampe, H. and Lücke, H. (2006), P.99
[18] Cf.: Krampe, H. and Lucke, H. (2006), P.100
[19] Cf.: Melzer-Ridinger, R. (2007), P.3
[19] Cf.: Gronau, N. (2010), P258
[20] Cf.: Kersten, W. and Seiter, M. and von See, B. and Hackius, N. and Maurer, T. (2017), P.14
[21] Cf.:https://loaistiktrends.bvl.de/en/svstem/files/t16/2017/Trends%20and%20Strateaies%20in%20Loaistics%20and%20Supplv%20Chain%20Manaaement%20% E2%80%93%20Diaital%20Transformation%20Opportunities%20Kersten%20von%20See%20Hackius%20Maurer.pdf on 23.01.2018 at 12:45Pm
[22] Cf.: Bell, J. and Mollenkopf, D. and Meline, S. and Burnette, M. (2016), P.12
[23] Cf.: Ijioui, R. and Emmerich, H. and Ceyp, M. (2008), P.85-86
[24] Cf.: Schlegel, G. and Robert J, 2015, P.297-298
[25] Cf.: Seebauer, P. (2007), P.120
[26] Cf.: Zsidisin, G. and Ritchie, B. (2009), P.316
[27] Cf.: Ijioui, R. and Emmerich, H. and Ceyp, M, (2007). P.71-72
[28] Cf.: Khan. O. and Zsidisin, G. (2011). P.19
[29] Cf.: Khan, O. and Zsidisin, G. (2012), P .2
[30] Cf.: Manuj, I. and Mentzer, J, (2008), P.138
[31] Cf.: Manuj, I. Mentzer, J. (2008), P.138
[32] Cf.: Manuj, I. and Mentzer, J. (2008), P.139
[33] Cf.: Sodhi, M. and Tang, C. (2012), P.37
[34] Cf.: Kersten, W. and Blecker , T, (2006), P.5
[35] Cf.: https://www.kinaxis.com/Global/resources/papers/supplv-chain-risk-management-white-paper-kinaxis.pdf on 28.01.2018 at 15:15Pm
[36] Cf.: Zsidisin, G. and Ritchie, B. (2009), P.3
[37] Cf.: Kersten, W. and Blecker, T. (2006), P.7
[38] Cf.: Kersten, W. and Seiter, M. and von See, B. and Hackius, N. and Maurer, T. (2017), P.16
[39] Cf.: Kersten, W. and Seiter, M. and von See, B. and Hackius, N. and Maurer, T. (2017), Pages, P.17
[40] Cf.: Khojasteh, Y. (2017), P.8-9
[41] Cf.: Gleaner, W. and Klein, A, (2017), P.244
[42] Cf.: Boger, M. (2010), P.37-38
- Quote paper
- Anonymous,, 2018, An Approach to supply chain Risk management based on SAP Event Management, Munich, GRIN Verlag, https://www.grin.com/document/437496
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