Erm Risk Management

Mitch:

Intro: Good Afternoon everyone, My name is Mitch McMahon and i'm here with my colleagues Layla, Yakun and Alvin. Today we are exploring the topic of enterprise risk management and how it relates to supply chain. Supply chain is a growing field with a variety of different topics, today we are going to touch on a few. These topics consist of outsourcing, supplier management, demand management and inventory management. While these topics cover a variety of different areas, today we are going to prove to you, firm guidelines, standard operating procedures and consistent monitoring practices help to mitigate the risk involved in supply chain.

One of the big worries in an increasingly global economy is the ability to control risk and maintain consistent quality when more and more companies are outsourcing Non-Core activities. This increasing trend is frequently driven by cost saving opportunities as well allowing resource constrained companies to focus their energies in what they deem as more important areas.

So what exactly is outsourcing, Outsourcing is defined as obtaining, goods or services from an outside supplier, especially when in place of an internal source. Outsourcing is often confused as offshoring, which is a smaller subset of outsourcing where the outside supplier happens to be in another country. Increasing a company’s complexity by outsourcing can create a variety of risks, and without proper procedure in place this risks can wreak havoc on a company's supply chain.

                One way to make sure that risk is minimized when outsourcing occurs is to create a detailed plan and lay out what the relationship between the company and the outsourcer should look like. Some examples of this is, requiring companies to sign Non-disclosure agreements, forming a joint venture between the companies, or setting firm quality guidelines. These things help to minimize the risk of misaligned incentives, and make sure the company receives what they expect from the outsourcing relationship.

                Another risk introduced when a company makes the decision to outsource is relying on a single supplier to produce all of the goods or services they are looking for. In this scenario they allow the supplier to hold the majority of the leverage in the relationship, and they are also in trouble in any scenarios where the supplier cannot fulfill 100% of the product or service. To remove this risk companies should aim to diversify their supplier networks in order to keep themselves abreast on accurate pricing for the goods/services they require. This also allows them to lean on different suppliers to fulfill orders when another supplier cannot meet the demand.

                Companies are often enticed to outsource by the allure of high cost savings and decreased complexity for their own organization. But before a company decides to chase after these projected savings they first need to step back and assess the viability of an outsourcing relationship. There are two important questions a company must ask before they outsource. The first and most important question is how much does this activity distinguish us from our competitors, or how unique is this process. If the answer to this question is very or this differentiates greatly a company should immediately step back from outsourcing. The second question is how critical is this activity to operations. If the activity is very critical it is more often appropriate to outsource. In this scenario the activity is crucial enough and of enough importance that it is likely that cost savings can be reached through an outsourcing relationship