Fundamentals of Risk Management

scope of the supply chain
Because of the increased use of outsourcing, there is an increasing interest in the risks 
associated with reliance on third parties. Outsourcing of operations is normally
undertaken because it is assumed that costs can be reduced and risks transferred.
A careful evaluation of the balance between risk and reward should be undertaken 
before any supply chain outsourcing decisions are taken.
The organization should be aware of the fact that outsourcing means that the 
organization will not only have to focus on its own risks but should also look at the 
risks associated with other links in the supply chain. Supply chain management and 
risk management are interrelated. Supply chain considerations are becoming more 
common, as well as much more complex.
Outsourcing of the various components of the infrastructure of an organization is 
only part of supply chain management. Successful management of the supply chain 
will rely on strategic partnerships and may also extend to joint-venture arrange-
ments. Supply chain issues also extend to simple outsourcing decisions, such as the 
appointment of cleaners and caterers. There was a strong trend in the 1980s towards 
the outsourcing of many types of facilities management within buildings.
In summary, the scope of the supply chain can extend to strategic partnerships, 
joint ventures, support services and outsourcing of facilities management activities. 
Many organizations also choose to outsource the transportation component of their 

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business. It is not unusual for chains of retail stores to outsource warehousing
arrangements and the delivery of goods to their individual shops. The operation of 
the shops themselves may also be outsourced by way of a franchise agreement.
The box below is a summary of the supply chain considerations that affected 
Nike in the mid-2000s. The company took actions to address the ethical sourcing 
issues that had been raised. In order to protect its reputation, Nike took rapid and 
decisive action in response to critical reports.
Nike has said that it has been facing a lot of problems with manufacturing in China, with 
suppliers giving falsified documents, under-age workers and unpaid wages topping the list. 
The sneakers and sportswear manufacturer, in what is believed to be its first country-specific 
supply chain report, has said that the company has been trying to get the Chinese suppliers 
to follow its code of conduct and Chinese law.
It is reported that the company’s difficulties are a reflection of the depth of some of the 
problems faced by manufacturing businesses in China, which reportedly is Nike’s largest 
single sourcing country, with around 180 manufacturers and about 210,000 employees, at
a time when prices are rising and the legal environment is stiffening.
The report, which was posted on Nike’s website, said: ‘As China continues to develop we 
see progress and best practices emerging. But like our partners in any other country, the 
factories we contract with in China continue to face challenges as well.’ According to the 
report, the company faced several labour-related problems, which included falsification of 
payroll records (details of age in particular), hiring practices and the absence of a proper 
grievance system for workers.
nike supply chain
There is frequent reference to upstream supply chain and downstream supply chain. 
Generally speaking, upstream supplies are those items that are delivered to you and 
downstream supply chain refers to the goods that you deliver onwards. This can
be explained as a timber grading company situated on the side of a river waiting
for timber to be delivered from upstream. The company grades the timber and then 
delivers the graded timber downstream to customers. However, this terminology is 
not universally used and can give rise to confusion.
Perhaps it would be better to think of goods delivered to you by your suppliers as 
the supply chain and goods that are provided or delivered by you to your customers 
as the delivery chain. Whatever terminology is used, it is the case that most organiza-
tions receive goods and services from component suppliers or outsourced services 
pro viders. Organizations will need to assess the risks associated with their various 
suppliers, as well as considering the risks arising from their position as suppliers of 
products and services that are delivered to their own customers and clients.