Weather disasters, safety issues and supply shortages are all risks when you manage a global supply chain. It is imperative you have a strategy in place to identify and mitigate these risks when your supply chain spans international borders, languages and time zones.
Sam Achampong, GM of Chartered Institute of Procurement & Supply (CIPS) told The National, “From sourcing new materials to manufacture, packaging and then distribution into the marketplace, effective procurement and supply chain management can make or break a business, influencing not just the bottom line but also the image of a company and its brand.”
Achampong introduced the latest CIPS Risk Index, a report by Dun & Bradstreet, that assesses factors impacting global supply chains. Its most recent report summarizes regions with the greatest risk:
The Asia-Pacific region is reported to be the world’s weakest link in the global supply chain due to China’s more stringent import requirements and weakened economic outlook.
Middle East And North Africa
Security concerns are identified as the main cause for risk in the Middle East and North Africa, most notably terrorism.
Latin America’s risks include natural disasters, political tension, slowing economies and depressed export commodity prices.
The region’s overall risk score worsened over the third quarter of 2015 (to 5.535, from 5.533 in Q2). In his book, Logistics and Supply Chains in Emerging Markets John Manners-Bell blames poor infrastructure, government instability and corruption for 80% of the sub-Saharan supply chain threats.
How to mitigate risk in your global supply chain
Identify internal and external environments
Start with identifying where threats exist. Identification needs to occur at least one tier up and one tier down for suppliers. The best supply chain risk management happens when evaluation dives deeper into third-party, or “hidden,” suppliers. The way “hidden” suppliers do business can have a huge impact on your business. You’ll want to investigate any hint of corruption and ensure all third-party suppliers comply with the laws of the countries in which they operate. Leading companies do this by ranking their suppliers by potential risk and hiring either a third party to make unannounced visits or visiting the factories themselves.
Recognize and evaluate risks.
Mattel recalled 18 million toys manufactured in China in 2007 because suppliers used lead paint. Toyota suspended production in Japan after the 2011 tsunami. Risks can be weather, supply shortages, quality issues, political unrest, theft, terrorism, customs issues and more. Some risks will be unique to the supplier and some will transcend the entire supply chain. Identify your company’s risks and rank them according to their likelihood to occur and their potential impact on profitability.
As one GM Supply Chain professional stated, “There is nothing that trains you about how to deal with a load of materials that have been infested with gypsy moths. While there are many things that can be taught, the best Supply Chain professionals are those that deal with the unexpected and still get their materials to the place they need to be on time and on budget.”
Put a plan in place.
You’ve identified the risks in your global supply chain. Now, what? It’s time to put a supply chain strategy plan in place. Work with insurance providers to mitigate risk where appropriate. Employ Lean Six Sigma to your supply chain to reduce cycle time and variation – doing so diminishes risk. Document a contingency plan for the loss of a major supplier and consider a second domestic partner source that can step in should your international supplier fail.
Monitor. Monitor. Monitor.
When it comes to developing a supply chain strategy risk management plan, you cannot “set it and forget it.” A system must be in place that evaluates risk intermittently and alters treatments accordingly. As shifts occur in the global marketplace, you’ll need to reevaluate the risks facing your supply chain as well.