Thursday, May 23, 2013

Global supply chain risks

Global supply chain risks While most companies have succeeded in operating lean and progressively more global supply chains, potential risks of interruption have increased exponentially from internal and external factors. There are various sources of these risks such as natural disasters, terrorism, geopolitical unrests and, the erratic market forces that have an effect on the market demand, supply and, prices. This has necessitated many multinational companies to maintain supply chains more flexible and integrate interruption risk management into all facets of their supply chains operations (Sodhi, 2012). Global supply chain refers to an international network of numerous companies and relationships involved in the processes of value addition to products through transforming raw materials into final goods or services to satisfy and surpass expected value of the final consumers. Disruptions in the global supply chains as a result of risks have become the main focus in private and public matters. Supply chain risks involve any danger of disruption to the smooth functioning of the supply chain (Sodhi, 2012). Sources of risk in the global supply chain can be categorized into two namely internal risks and external risks. Internal risks are the ones that the management of the company can control and influence, such as the business processes and physical resources that are within the company. They comprise people, money, transportation, distribution, physical assets for manufacturing process and, the efficiency in managing them to meet consumer needs and generate profits for the company. Under this scenario, sources of risk include product quality where inadequate control may result in delays, consumer dissatisfaction, and even possible breach of the law (Sodhi, 2012). Further, interference in asset productivity replicates throughout the supply chain leading to unbeneficial and uncompetitive models of business. Also another source of risk is data integrity. At times goods may lack major elements of data like cost information, constituents of bill materials and, supplier and pricing codes. This has greatly been contributed by transit of goods through several parties, different geographical locations and systems before they reach the consumer. Moreover, many different products are transported through various points of the world and tracking them consistently becomes difficult. This makes it attainment of clearness in the supply chain almost impossible (Sodhi, 2012). On the other hand, external sources of risks include market volatility, government legislations, natural disasters and, macroeconomic factors. Market volatility is caused by change in consumer tastes, oversupply, determined pricing and, unexpected fall in consumer demand for a product. Further legislative orders are at times time consuming and difficult to fully comply with. Worse still, breach of the law may put the company, product and even consumers at risk. Natural disasters include floods, diseases, and drought. They can have adverse effects on yields, quality and, market prices hence interrupt supply chains of companies that rely on such materials. Macroeconomic factors include currency fluctuations, interest rates, fuel and energy prices which tend to change often (Sodhi, 2012). Fortunately, there are several measures to mitigate the effect of these risks. Firstly, all should be made employees risk managers. Managers must be mindful of risk sources and ways to perceive it and incorporate it in their every day practices. They also need to be flexible to apply sensible techniques in their operation. Moreover, mangers should offer a basis for their staff to join forces and share information to mitigate risks. Managers also need to identify unexpected interruptions to the supply chain in good time. Better alerting technologies continuously look for and monitor unexpected events in the supply chain. They warn instantly if anything goes wrong (Sodhi, 2012). Also evaluating the performance and alleviate risk through constant optimization of the business process. Cooperation and alerting technologies together permits a company to respond instantly and enhance the likelihood of detecting the problem and remove the source. Therefore, management of a company should be more cautious on the threats to the financial interests of the company. There is greater need for them to be observant throughout the supply chain. Reference Sodhi, M et al (2012). Managing Supply Chain Risk. New York: Penguin group.