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Risk Pooling: How It Defines Supply Chain Strategy

Risk pooling is the single greatest concept for making the best supply chain decisions, according to Edith Simchi-Levi, VP of Operations at OPS Rules Management Consultants. She defines risk pooling as “a statistical concept that suggests that demand variability is reduced if one can aggregate demand, for example, across locations, across products or even across time.” Then she goes into a list of six examples of how risk pooling applies to various areas of the supply chain, namely in inventory management, warehouse location and product flow, transportation, push-pull strategy, postponement, and product design. In transportation for instance, centralizing products and warehouses means shipments may be sent in larger batches, decreasing overall costs to move goods. In push-pull strategy meanwhile, the first stages of supply chain push items into production while the latter stages demand pull for finished products to be assembled. Consult the full article for more examples on what risk pooling means for your supply chain.

About John Friscia

John Friscia is the Editor of Computer Aid's Accelerating IT Success. He began working for Computer Aid, Inc. in 2013 and continues to provide graphic design support for AITS. He graduated summa cum laude from Shippensburg University with a B.A. in English.

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