Ericsson’s Supply Chain Risk Management

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The third part of Ericsson’s risk management process is handling risk, involving the development of risk aversion strategies and the decision to implement them. This process takes a linear responsibility system, and the responsibility for risk management is consistent with the product line (Andreas and Carl, 2012). Whoever implements the risk aversion strategy depends on where the risk is located. Ericsson firstly set up a risk management responsibility statement to decide whether the risk should be handled by purchasing section, or the production section. Then developing risk maps and the template of corresponding risk management measures to show the source, probability and results of the risk. Followed by are various risk control strategies, their implementation costs and their influence on the risk condition. In particular, the cost of taking risk prevention measures should be compared with the business interruption value (BIV) to prevent risk excess high investment. According to Ericsson’s regulation, the supplier must promptly convey the accident report to Ericsson's risk management department once the accident happens. The risk management committee then will decide the accident management measures with the production department, the purchasing department and the supply department, and inform every departments and market areas. Ericsson never allow the supplier to conceal the accident, or report the accident to the media firstly.

The fourth step is risk monitoring. According to the regulations of Ericsson’s Risk Management Committee, if an incident occurs frequently, or if its risk level is high with no effective risk mitigation measures being taken, the risk state of this incident needs to be monitored continuously. If some risk avoidance measure have been taken, but the residual risk level does not reduce to an acceptable level, then the risk state of that incident still needs to be monitored. During the process of risk monitoring, some tool templates can be used to supervise the responsibilities performance of the relevant sections within the corporate and the situation of various partnership in supply chain fulfilling their risk control commitments. At the same time, Ericsson pays special attention to the implementation status of risk management process of suppliers and subordinate suppliers (Giunipero and Aly Eltantawy, 2004).

The last step of Ericsson’s risk management process is sustainable planning management. In order to make the sustainable plan, Ericsson designed a suggestion box in the enterprise internal network to collect advice. Every employee can put forward his own advice to improve the sustainable plan. Ericsson's previous sustainability program focused on site recovery, but now the focus shifts to the entire supply chain, emphasizing controlling risk with suppliers (Craig and Easton, 2011). Ericsson has consulted with the supplier to incorporate the following requirements into contract: (1) the supplier should establish a secure procurement plan including the regular development of an enterprise sustainable development plan; (2) the supplier shall determine the reserve resources for each corresponding department; (3) the person responsible for the safety procurement program activities should be designated in each corresponding department; (4) the supplier should report the incident in time; (5) the suppliers should allow Ericsson to supplement the plan; (6) suppliers should actively carry out risk management measures with their suppliers and partners.

At the same time, Ericsson has also established a contingency disposal mechanism to reduce the impact of contingencies. After "Albuquerque incident", Ericsson built up a "special task team" (STT) to handle accidents and emergencies. Once the incident occurred, the circumstance needs to be promptly reported to STT of the procurement section, supply chain management section and production section. The incident report is required to be promptly transferred to the supply chain risk management manager and the risk manager of the corporate. And the relevant system business areas and marketing representatives should also be notified. If the company can not manage the risk by eliminating or minimizing the impact of the risk, then it needs to develop a contingency plan to determine what action should be taken if an incident occurs accordingly. Ericsson divides contingency plans into response plans, recovery plans and rehabilitation plans.

According to the above content, Ericsson’s supply chain risk management approach can be summed up. Firstly, Ericsson draws a multi-layer supply chain diagram for its suppliers based on the product or components and parts to identifies key suppliers and supply links. Then Ericsson uses risk management and evaluation tools to analyze and estimate supply chain risk and other risks, taking various sources of risks into consideration. Through these two steps, Ericsson can roughly estimate the impact of the material shortage on the entire supply chain. Thirdly, Ericsson analyzes the probability and consequence of each risk, converts the supplier's risk into Ericsson's business risk, and calculates the business interruption value of the supply chain risk. Lastly, Ericsson discusses and determines a concrete risk management plan on the basis of the results of risk estimation. Practice has proved that the new supply chain risk management methods run well, the supply chain has become more secure and reliable and makes great contribution to Ericsson. As a result of improvements in supply chain risk management, Ericsson's premiums became lower than expected.

Ericsson's supply chains risk management system has many advantages. First of all, this supply chain risk management system involves whole process of management (Nick and Peter, 1997). Ericsson's supply chain risk management combines universal corporate management theory with the supply chain management theory, and it is an integrated supply chain risk management approach. This approach is the closed-loop process that consists risk identification, risk estimation, risk treatment, risk supervision, sustainable plan and contingency plan. The supply chain risk management method of Ericsson not only effectively identifies the major risks the company facing, assesses the characters and influences of the risks, develops various measures to handle risks in advance, but also monitors risks continuously in daily management to prevent risks from happening or timely takes corresponding measures once the incident happens. Secondly, Ericsson's supply chain risk management system takes a suitable risk identification and measurement methods. Ericsson conducts specific analysis of specific problems under specific environmental conditions and identifies current or