Supply Chain Risk: The total supply chain risk refers to the likelihood of disruptions and the potential impact those disruptions can have on the supply chain's ability to function effectively.
Reducing Supplier Base: When a company reduces the number of suppliers for commodity-type components, it becomes more dependent on a few suppliers. This increases vulnerability because any disruption at one of these suppliers (e.g., financial instability, natural disasters, or quality issues) can have a significant impact on the company's operations.
Comparative Analysis:
Standardizing Components: This can reduce risk by simplifying inventory management and improving flexibility.
Expanding Operations: This can distribute risk across multiple locations.
Consolidating Manufacturing Locations: This might increase risk but usually for specific events like regional disruptions.
Conclusion: Reducing the supplier base for commodities is most likely to increase total supply chain risk due to increased dependence on fewer suppliers, leading to higher exposure to supply disruptions.
References:
Chopra, S., & Sodhi, M. S. (2004). Managing Risk to Avoid Supply-Chain Breakdown. MIT Sloan Management Review, 46(1), 53-61.
Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2016). Purchasing and Supply Chain Management. Cengage Learning.
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