Opinion: Risk management in an evolving global supply chain
13 January 2015
With the Christmas retail season over, Business Reporter explores how firms can manage risk in such huge and constantly evolving supply chains.
The festive season has ended, and the retailers can breathe a collective sigh of relief. Their busiest time of the year means their operations have had to be resilient and robust. The supply chain is at the heart of this and it has been used to plan the Christmas period for months. But what lies at the success of this supply chain and what lessons can be learned?
Managing a supply chain in today’s global economy is fraught with difficulties. Supply chain managers have to maintain a balance of cost, agility, and sustainability, as well as manage the logistics and the manufacturing footprint. All these issues come with their own problems, but overall the trade-off is cost versus risk.
To strike a chord between cost and performance, supply chains have to be inventive. That means essentially going out into new markets, using new local suppliers, and accessing new customers. Invention comes at a cost, as these are new, unexplored areas of risk. So risk management is an important part of supply chain management in a global context.
As organisations strive for new opportunities for a more effective supply chain, so risks are more prominent. Who is that new local supplier? Can they be trusted with your product? The new country you’re now operating from – what are the geographical risks? The political risks? The legal risks?
Any supply chain manager worth their salt would have scoped out the potential for supply chain innovation in a new region or new sector and calculated the potential risks and mitigated them. But the risks are ongoing – the garment factory that collapsed in Bangladesh was not a direct supplier to the main fashion brands, but they were implicated, and the reputational damage was enough. Could they have done more to manage their risks?
Essentially, global supply chain disaster comes when companies least expect it. They have done due diligence, they have calculated potential geopolitical issues. But – and here’s the kicker – supply chain managers can use the risk for their benefit.
In business, first-mover advantage is important – beating the competition to a new market leads to a new customer base. If organisations can manage the risks – the known risks, and the unknown potential disasters, there is a reward to be had. So organisations have to be innovative, lead the way, meet the risks head-on and take that reward.
And you never know, Christmas deliveries won’t seem as hard in the future.
Hear from risk management experts at Risk to Reward, this April at The British Museum.