Question

Where is there risk for supply chain disruptions or stoppages to the flow of materials?  

Answer 1

Following is where the risk of the stoppage to the flow of materials occur in supply chain management:

• Sharing of Information: With the lack of appropriate incentives given to the channel partners, aligning of the same has become an issue. In case of purchasing, the cost data information is needed to design the pricing of the purchase accordingly. However, the issue is that the channel partners may either abuse this information or conceal the same in order to the gain the informational superiority by delivering the information to the Company as against a hefty price for the same. Another issue is that the information is subject to the trust of the channel partners and their cooperation to share the same, in order to determine the selling price of a commodity that would in turn determine the trend of the purchases in the Company.
• Procurement management: The next risk for disruptions in supply chain pertains to the procurement challenges. Often the raw materials required to produce a product is purchased either on cash basis or on credit. However, the issue arises when such a purchase is prone to the monopolistic approaches of the suppliers. Hoarding the materials to create artificial crisis in the market and then eventually increasing the prices of the procurement, affect the purchasing power of the Production companies significantly. Also, at the times of genuine crisis, the procurement could come with a major cost thereby increasing the overall cost of production in the business.
• Logistics issue: When the channels of logistics are not properly designed or when it is prone to frequent changes owing to the influence of the external factors, there is a disruption that is caused to the supply chain process. Frequent disruption may result into receiving lesser volumes of purchased goods on time and thereby delay in the production processes which in turn affect the sales volumes of the business.
• Effect of Globalization: Globalization impacts the businesses either positively or negatively. The issue becomes when the fluctuations in foreign exchange rates adversely affect the purchasing activity of the Company. Further, the demand for the Company’s goods could also fall in the global markets thereby making the purchases undesirable. Also the political scenario and regulations guiding the host countries may act as deterrence to the Company’s products thereby affecting the purchasing activity for the same.

Moreover, in Supply chain network, further disruptions occur when the power is exercised over the vertical layers in upward succession, there occurs double marginalization. The unintended consequences of double marginalization would be as under:

• It raises the retail prices to be higher with the sequential mark-up cost however, the overall profits is relative lesser in case of double marginalization than in case of vertical integration.
• Results into higher buyer prices but profits remaining lower to the sellers.
• The dead-weight losses are increase in the process of double marginalization that also reduces the profits in the whole market.