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Risk Management in Purchasing and Supply Management

Minimizing risk is crucial for anyone in charge of a complex system, and traditional approaches aren’t good enough (Sargut and McGrath)

Information about Risk Management in Purchasing and Supply Management

One of the main functions of supply management is to ensure smooth and uninterrupted flows of goods and materials. Today, organisations operate in increasingly complex and uncertain environments with high risks of supply disruptions making supply management an increasingly complex task. The environmental pressures and risks require companies to constantly and consequently analyse and reduce these risks (Ellis et al., 2010).

Supply disruptions can be defined as any unforeseen events that disturb the normal flow of goods and materials in a supply chain. These disruptions can have major negative consequences for the management of operations. For example, they can result in production disruptions and hampered productivity and capacity utilisation. In the longer term supply disruptions can negatively affect the shareholder price and a company's long-term financial performance. For a purchasing organisation, a supply disruption can also mean inability to meet demand and satisfy customers (Ellis et al., 2010). Supply disruptions can come from a wide variety of sources, including physical damage at production facilities, natural disasters, strikes and labour disputes, capacity issues, inventory problems, incorrect forecasts and delays (Chopra and Sodhi, 2004). Understanding supply risks can enable purchasing organisations to take effective action in response to those risks (Zsidisin et al., 2000).

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