Studies are more likely to maintain an effectively functioning

Studies
have shown that firms that mitigate the effects of an uncertain environment in
a timely manner are more likely to maintain an effectively functioning supply
chain. Mason-Jones and Towill (1998) stated that “those companies which cope
best with uncertainty are most likely to produce internationally competitive
bottom-line performances”. Management practices to manage uncertainty can be
treated from different points of view for example, operational and strategic
perspectives.

Lee
(2002) said that only through information sharing and tight coordination can
one regain control of supply chain efficiency. Information sharing practices
can be implemented at both the strategic and operational level. Some
researchers have emphasized the importance of a firm investing in supply chain
agility and responsiveness to respond rapidly to market place fluctuations. (for
example, Braunscheidel & Suresh, 2009). Literature has also examined the role
that supply chain visibility plays in managing uncertainty. From a strategy
perspective, Lee (2002) pointed out that a firm should choose a supply chain
strategy based on the genre of the product it is offering to the market i.e.
whether the product is functional or innovative and the characteristics of the
demand.  In relation to this, there are
several literatures that has explored the effects on firm performance, that
product characteristic alignment with the supply chain design holds. (e.g. Wagner et al., 2012; Qi et al., 2007). Additionally,
both the Industry and academic scholars have acknowledged the benefits of
managing supply chain networks by integrating operational, design and financial
decisions.

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According
to Chopra & Meindl (2008); the objective of a supply chain is to maximise
the overall value generated. This Value is defined as the difference between
what the value of the final product is to the customer and the cost the entire
supply chain incurs in filling the customer’s request. The higher the supply
chain profitability, the more successful the supply chain is. Therefore, supply
chain success should be measured in terms of Supply chain success and not in
terms of profitability at each individual stage. A focus of growing the supply
chain surplus forces all members towards growing the overall size of the pie.

Chopra
and Meindl go on to mention that supply chain decisions have a big impact on
the surplus. There is a connection between design and managing the supply chain
flows and the success of the supply chain. The design and its impact on the
supply chain success can vary for a variety of reasons. There are several
factors that affect the decisions taken in designing a supply chain. Effective
management of supply chain flows is key to success.

Toyota
is a good example of a company that has used supply chain design, planning and
operations to its advantage. It managed to adopt its supply chain to customer’s
changing needs and succeeded during the financial crisis in 2008. On the other
hand, General Motors did not make the right decisions to adopt its supply chain
to changing customers’ needs.  It lost more than $90 billion through
the first quarter of 2009. As the experience of General motors
illustrates, a failure of adapting the supply chain to it’s changing
environment can hurt a company’s performance immensely. Another example of a
company that has benefited from supply chain design and planning is Dell.FN1 

The
coming sub chapters will provide an insight on the different methods firms have
used in managing supply chains with uncertainty.

1.1       
Strategic
sourcing

According
to Heizer & Render (2013); A firm’s purchase costs account for 60 percent of
the revenue on average. It is therefore imperative that firms look for ways to
optimize their sourcing activities. In fact, one can argue that without an
effective sourcing plan, it is very difficult to manage locational resources on
a global basis.

Firms
invest in strategic sourcing for different reasons. Some firms undertake on
global sourcing, as an opportunity to get raw materials at cheaper price. For
example; The World Trade Organization annual report in 1998 stated that; In the
production of an “American” car, 30 percent of the car’s value originates in
Korea, 17.5 percent in Japan, 7.5 percent in Germany, 4 percent in Taiwan and
Singapore, 2.5 percent in the United Kingdom, and 1.5 percent in Ireland and
Barbados. That leaves only 37 percent of the production value generated in the
United States. Other firms are forced to expand their sourcing activities
across the border because they are expanding their business internationally.
Some firms use specialized raw materials that can only be sourced in specific
countries with the necessary technology to produce and hence focus on building
strategic partnerships with such suppliers. According to Goker et al., (2014); To
curb the complexity of globally expanding supply chains, firms are moving away
from arm’s length sourcing techniques, which were mainly price driven and as
such were characterized by short-term contracts which allowed firms to switch
suppliers easily when a lower price was negotiated with an alternative
supplier. Multinational firms that rely on arm’s length suppliers (with whom
they have short term contracts or no contract at all) become dependent on these
suppliers for quality assurance of the parts, relinquishing part of the most
important value-creating activities. This especially is not effective for special
components.

On
the contrary, firms may focus on building their local sources of supply as a
method of coping with uncertainty. For example, in a situation where an economy
is affected by currency fluctuations, local procurement may be favoured over foreign
sources of supply. Another strategy may be to source within a region. An
example is Toyota operations in Southeast Asia, where a sourcing strategy was
developed such that the company branches supply each other with key components
to benefit from increased economies of scale and foster standardization in
those components. Indonesia supplies gasoline engines, steering components are
supplied from Malaysia, transmissions from the Philippines, and diesel engines
from Thailand.

From
a different perspective; the shift in sourcing strategy is also deeply
influenced by innovative concepts undertaken to manage parts of the supply
chain effectively in the face of uncertainty, such as just in time manufacturing,
vendor managed inventory.

In
summary, suppliers are now being recognised as major contributors to a firm’s
success, especially because global supply chains are faced with a wide range of
uncertainty.  As a result, firms are
forming more strategic partnerships or collaborations with their suppliers. This
focus has then led to less number of suppliers and increase in development and
performance measurement programs of suppliers.

 FN1Expand
on their model