Recently a piece of news which has hit the business circles and is being discussed very much is that Sony is going to reduce 75% of supply chain. Sony will now be relying on 250 of its 1000 current suppliers as a part of short term temporary strategy. Sony is choosing these 250 partners for key products such as digital cameras, smart phones etc. (Bloomberg Business Week, 2014) The news is being discussed in the business circles heavily. Some are criticizing Sony for this thing, others are just commenting. Apparently, the purpose of this drastic reduction in supply chain seems the acceleration of supply at lower costs and this makes sense w hen one comes to know that Sony’s Chief Executive officer, Kazou Hirai forecast last month a loss of more than a billion $ to the corporation. I’ll analyze this decision taken by b y Sony Corporation in the following lines. Supply chain has a number of categories of risk attached to it. For example, one of the categories of risks attached to supply chain department is disruption. (S Chopra, 2004). Under the category of disruption, there come several things such as natural disasters or catastrophes, labor disputes, war and terrorism etc. (S Chopra, 2004). 20 04). In short, all those factors which can physically cause harm to the supply chain come under the category of disruption in the studies of supply chains. Large number of suppliers means the process of supply is more prone to natural disasters whereas on the contrary, a fewer number of suppliers mean the margin of safety for the corporation.
Similarly, the more the number of suppliers, the bigger will be your supply chains but there will be a loss in that too. It is hard to keep check on the larger numbe numberr of suppliers. For example, if a dispute occurs between the labors and the employer in one of the supply chains, your supply chain process may become considerably slow. This kind of external effect also comes under und er the category of disruption. Similarly the risks associated with law and order situation i.e. war and terrorism and the risk of the bankruptcy of supplier also come under the category of disruption. (S Chopra, 2004). The more suppliers you choose the greater expenses you have to make and the greater risks you have to face. The corporation has to see its’ benefits first, therefore this decision of a cut in supplies seems justified by
Sony corporation when we analyze it against the risks of disruption. Disruption is not the only category of risks associated with the supply chains. The second biggest risk to a supply chain is the risk of delay. Delays can affect the supply chain of a corporation and hence the operations of the corporation as well. A larger circuit of supply chains is more prone to risks of delays as compared to a shorter one. Delays in a supply chain can take place due to various reasons. For example, high capacity utilization is taking place at the supply source the process of supply can get delayed. (S Chopra, 2004). Similarly, if a supply chain is designed inflexibly, i.e. it is unable to meet negatively varying deadlines, the supply chain may face a delay and the eventual effect of this will be put on the organization.
Similarly, poor quality of the product at the supply source may lead to a delay if the product is to be tested and improved before the dispatch to the market. Excessive handling due to border crossing or other legal matters like this may cause the supply chain to face a delay as well. A delay in supply affects the repute of corporation adversely and Sony Corporation can’t afford the loss of its
customers at a point where the CEO of the corporation has already forecast a loss of 1.1 billion $. Other risks to a supply chain include the risks associated with systems, intellectual property, forecast etc. Risks associated with systems mean that there may occur a breakdown of information system or information structure of the organization. Not only this, but there may happen something which may affect the capability of the system to integrate data. From the above explanation of what are the risks associated with the systems, it is quite clear that it is harder for bigger supply chains to integrate the data and to protect that in an appreciable manner whereas the job is quite a handy one for the smaller organizations. Forecasts value a lot in determining the risk efficiency of a supply chain. A right forecast may be helpful in determining the future goals and orientation of an organization whereas an extremely optimistic or pessimistic forecast may cause a considerable loss to the organization. Sony’s CEO has already forecast a loss of more than a billion dollars, which seems closer to the reality, when we look at the declining consumption of Sony’s products in the market.
I have summarized some kinds of risks which may affect the supply chains of an organization or corporation and may affect the operations of that corporation as well. These risks if not tackled immediately, become the permanent flaws of the supply chains of the organization and may affect the operations of the organization or corporation. The cost-effective way to deal with these sorts of challenges or risks is to reduce the number of suppliers, thus making supply chains shorter and better manageable than ever and this is what Sony Corporation intends to do. The decision taken by CEO of Sony Corporation is financially a good one as well.
Bloomberg Business Week. 19 March, 2014.
Chopra, S., & Sodhi, M. S. (2004). Supply-chain breakdown. MIT Sloan management review .