Supply Risk Management as a means of achieving World Class Commodity Management

Abstract

Background
Axis Communications AB is a network surveillance company based in Lund, Sweden, that has experienced steady growth for several years. Axis has no own manufacturing and instead utilize contracted manufacturers around the world. It is the sourcing department at Axis that are responsible for establishing contracts with these manufacturers as well as suppliers. The responsibility of handling contracts and the long-term relationship with the suppliers and contracted manufacturers are divided into different commodities. In order to improve this working method Axis’ sourcing department has launched a goal to reach world class commodity management.

To be noted is that this thesis has been a complete elaboration between the two authors. Each author has been involved in every part of the process and contributed equally.

Problem Formulation
The sourcing department’s goal of reaching world class commodity management includes several aspect were one were one was risk management. Axis have realized that there is a lack of structure in their current proactive risk management and is not satisfied with it. Therefore, external guidance, in form of this master thesis, was brought in. Axis’ desire was to identify which commodity management.

Purpose
The purpose of this research and master thesis can be seen from two perspectives; (i) as an effort to develop the research area within SCRM in connection to sourcing with a live-case; and (ii) to assist Axis in their journey towards World Class Commodity Management through proactive SRM.

Methodology and Method
A constructive research approach was chosen for this master thesis with the use of both qualitative and quantitative data. The constructive research approach highlights the importance of testing the developed construct. Testing of the construct was done together with employees at Axis that would directly work with it and based on their feedback the construct was modified to a minor degree.
A single case study combined with survey was used as a research methods which resulted in empirical data from 15 interviews and survey data from 12 respondents. This data was then summarized into the empirical data chapter highlighting several aspects of Axis, e.g. organizational, governance, and the informal risk management process. The data was analyzed through explanation building and descriptive statistics to identify which aspects needed to be included in the construct.

Conclusion
The conclusion of the master thesis was that Axis should include more alignment, compliance, and a structured approach in their proactive supply risk management in order to reach world class commodity management. However, since Axis is a decentralized company with high level of individual freedom the introduction of more compliance based, structured SRM with a systematic approach could be challenging. Therefore, collaboration with employees, cross-functionality between departments, and adherence with the suggested process are key in order to achieve a higher level of proactive SRM. The proactive supply risk strategies, processes, tools and governance should be developed in order to reach world class suggested proactive SRM process follows four steps: (i) risk identification; (ii) risk assessment; (iii) risk treatment; and (iv) risk monitoring. Moreover, a facilitating initial process step, mapping, is also suggested to provide a more thorough understanding of the supply chain and its components.

Currently Axis were using some tool in their risk management work and they should keep using these. However, since they were used in an unstandardized way predetermined parameters and guidance for their usage should be developed. Further, additional tool that Axis can use is presented in this master thesis which aims could lead to more informed decisions at the sourcing department in connection to proactive supply risk management.

The strategies that should be used for proactive supply risk management depends heavily on the situation. Therefore, more structure through a process is suggested so that they are selected in a data driven way. This aims to bring more alignment to the sourcing department so that knowledge based decisions can be made.

Popular Abstract

The development of proactive Supply Risk Management (SRM) processes, strategies, and tools in a decentralized and innovative organization can be challenging as it requires structure, compliance and a systematic approach. Nevertheless, it is needed and should be an important part of an organization’s business.

We recommend a proactive SRM model which consists of four processes: (i) risk identification; (ii) risk assessment; (iii) risk treatment; and (iv) risk monitoring, with a supporting framework regarding governance and organization. The enablers of the solution are alignment, compliance, and continuity which is needed in order for organizations to reach best practice regarding their proactive SRM. Especially for those that are decentralized and innovative. Furthermore, the study is based on an in-depth analysis, comparing the activities of the company Axis Communications AB with a robust literature review of over 120 sources from academic journals and books on the topic of SRM.

The first step, risk identification, consists of two different scans: deep scan and continuous scan. The deep scan should cover all relevant areas where risk might be identified and the continuous scan should be a lighter version mainly focusing on updating risks. The output of this step is a risk list with categorization of all risks. One should be aware that the risk identification step determines the quality of the whole risk process. The next step, risk assessment, focuses on evaluating the identified risks. It is recommended that the evaluation activity includes a calculation of the risk value. The risk value can consist of several different, but predetermined, values that are multiplied. We suggest, but do not limit to, impact on revenue, probability and goodwill. Then the risks should be classified as well as prioritized. The output of the risk assessment step is a classification and prioritization list. The third step, risk treatment, selects appropriate risk mitigation strategies depending on the severity and type of risk. The goal is to eliminate or reduce the risk to an acceptable level. The input is based on the classification and prioritization list from the previous step. In order to create continuous improvement and learning, a database over the selected strategies and their outcome is suggested. The last step, risk monitoring, consists of keeping track of identified risks, selected treatment strategies, and their overall performance. Risks are to be monitored as they, by nature, can change. While monitoring of strategies and performance will lead to alignment, consistency, and comparability across the organization.

The governance and organizational framework that was developed highlights four concepts that are key for Axis to reach a higher level of proactive risk management. These concepts are: (i) top management support; (ii) risk culture and incentives; (iii) training and learning; and (iv) IT/IS support. These concepts will hopefully result in, what the authors have called, the supporting principles for proactive supply risk management. The principles are not activities or processes but are nevertheless important for proactive SRM. The principles are: (i) continuous improvement; (ii) alignment and cross-functionality; (iii) compliance; and (iv) risk awareness.

The solution is adapted to Axis situation and needs. But could, with modifications, be utilized in other companies which are also in need of improving and structuring their proactive SRM activities. The full study is published in the report “Supply Risk Management as a mean of achieving World Class Commodity Management” at The Faculty of Engineering – LTH, Lund University.

• author: Westerberg, Fred and Nörgaard Grytli, Truls
• supervisor: Andreas Norrman
• organization: Engineering Logistics; Department of Industrial Management and Logistics
• course: MTTM05 20201
• year: 2020
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: Proactive Supply Risk Management, Risk Management, Supply Chain Management, Sourcing, Commodity Management, Single Case Study, Survey, Axis Communication AB
• report number: 5929
• language: English
• id: 9020514
• date added to LUP: 2020-06-22 12:39:34
• date last changed: 2020-06-22 12:39:34