Fundamentals of Risk Management

supply chain 
management
Importance of the supply chain
ISO 28000:2007 ‘Specification for Security Management Systems for the Supply 
Chain’ provides the following definition of supply chain:
A supply chain is a set of interconnected processes and resources that starts with the 
sourcing of raw materials and ends with the delivery of products and services to end 
users. Supply chains may include producers, suppliers, manufacturers, distributors, 
wholesalers, vendors, and logistics providers. They include facilities, plants, offices, 
warehouses, and branches and can be both internal or external to an organization.
Many organizations outsource major parts of their operations and support services. 
This can range from the use of contract cleaners through to transport, communica-
tions and manufacturing outsourcing. Many leading suppliers of fashion goods
design the products and supply the finished items through franchised retail stores.
All manufacturing and distribution activities are frequently outsourced to third-
party providers in different parts of the world.
Because of these developments, supply chain management has become vitally
important. Managing the supply chain in an increasingly globalized and competitive 
world can be very challenging. Uncertainties in supply and demand, globalization of 
marketplaces, shorter product lifecycles and rapid changes in technology have led to 
a higher exposure to risks in the supply chain. The Japanese earthquake in March 
2011 caused considerable disruption to the supply of components for Toyota cars 
constructed in Japan.
Toyota is reported to have reviewed supply chain management to ensure that it is 
prepared for future incidents. A Toyota executive vice president commented:
We are making checks to see what needs to be done to enable a recovery within two 
weeks of when the next earthquake comes.
All kinds of uncertainties can cause problems in the supply chain and this has
increased the importance of risk management. It is impossible to eliminate risk
entirely, but adequate attention to risk management matters can reduce the likeli-
hood and magnitude of any disruption to supply. As the trend towards obtaining 
components and finished goods continues to lead to greater use of manufacturing 
facilities overseas, the corporate social responsibility issues also tend to increase.