Today’s global manufacturing marketplace features significant outsourcing and highly constrained lead times. Globalisation of supply networks provides more opportunities for growth, success, efficiency and effectiveness, but it also brings heightened risk in the supply chain.
What are the Supply Chain Risks?
Supply chain risk comes in many forms and being able to identify the largest ones is the number one route to mitigating loss caused by supply chain risks. In this blog we examine 10 of the main risks in international supply chains.
(1) Political Instability
Businesses that do business globally need to be aware of the political instabilities within the country they are trading in and whether weak economic or financial insecurities exist. Supply chains can be critically impacted since many companies run supplies on a just-in-time basis. Whilst it is possible to avoid known areas of extreme supply-chain risk and have robust risk management plans, it is not always easy to predict exactly where the political instability will come from.
(2) Economic Swings and Exchange Rates
Economic swings and exchange rates are a real threat. Take Brexit, for example. In the wake of Brexit, many operators working across the UK and Europe suddenly found their profit margins taking a hit as the exchange rate reacted to the referendum result. The full economic impact of Brexit is not yet known but the implications for the supply chain are expected to relate to the supply of goods, the ability to access skills and people and the effects on economies of scale.
(3) Security Problems including Cyber Security
Being able to guarantee the safety of your product as it travels from A to B has traditionally been an area known for risk in the supply chain, for example from theft, tampering, counterfeiting or product spoilage. However, fairly new on the scene is the risk posed by cyber security. Global trading means that companies are exchanging sensitive information with many business partners and the ability to protect data becomes hard as it becomes disperse among complex international supply chains.
(4) Customer Demand Changes
Before the digital age, and the move towards demand driven supply chains and reduced lead times, customer demand changes were buffered by long lead times and high levels of inventory. However, nowadays customers have instant access to information which has given them the ability to influence the supply chain throughout its process. Customers can, and do, change their minds at a far later stage than was previously possible. This has a ripple effect throughout the supply chain.
(5) Transit Delays
A supply chain can span across many countries and this means that multiple modes of transportation are used across different logistical hubs. This, combined with the approach to operate just-in-time deliveries, results in shorter expected lead times. Therefore any transit delays such as an unforeseen transport strike can adversely impact the supply chain.
(6) Regulatory and Environmental Compliance
Owing to the changing nature of the global marketplace, regulatory and environmental compliance now needs to be remembered in terms of managing risk. Ensuring you have jumped through all necessary legal hoops at every stage in your supply chain is critical to continual trading. Furthermore, ensuring that you understand and can navigate all relevant customs throughout your supply chain is essential.
(7) Natural Disasters & Weather
Although a force majeure is completely unpredictable, natural disasters have the capacity to decimate a supply chain and with it, a complete business. For example, Japan’s exports declined by 11.3% in May in considerable part due to supply chain disruptions caused by the Kumamoto earthquake.
Just like natural disasters, terrorism is largely unpredictable; however, there is no denying its devastating impact on supply chains travelling through or near to the affected area.
(9) Supply Shortages
Once again, the global and instant nature of the current marketplace comes in to play. It isn’t always possible to accurately forecast demand and therefore accurately meet supply. With the advent of social media it isn’t easy to predict what product will go ‘viral’ and which will only have a short life.
(10) Legal Issues
Supply chains are inevitably dictated over by various legal issues. There are times this may artificially elevate either supply or demand. For example, in the US, legislation encouraging Craft Beer has artificially boosted the industry, but this in turn may ultimately cause an over-demand, or over-supply.
How to Mitigate Risk in the Supply Chain
For many businesses the reality is that risk planning gets repeatedly lowered on the ‘To-Do List’ until disaster strikes and they are in the midst of a crisis. This is too late. Risk management needs to be a high-priority and fully integrated in to any business plan. Businesses who mitigate the known risks as much as possible are the ones who survive when a supply chain crisis hits.
With Supply Chain Risk Management businesses can reduce vulnerability and ensure continuity of supply during both every day supply chain problems and exceptional circumstances. This contingency planning makes for a water-tight supply chain.
Knowing where to start in reducing the supply chain risk to your business can be daunting task. We are expert supply chain consultants, thoroughly experienced in understanding and mitigating risk in the supply chain. If you have any supply chain concerns or questions, please contact us for a discussion.