FEBRUARY ONLINE EXCLUSIVE: Stay Out of the Supply Chain Trouble Zone

Running a supply chain in global hotspots is definitely a challenge in today’s tumultuous world. The media shows us how political unrest, economic uncertainty and environmental disasters can strike seemingly out of nowhere, causing difficulties for companies trying to do business in far-flung markets. How can supply chain executives monitor and overcome global uncertainty? How can they mitigate supply chain risks in unstable regions?

Uncertainty on the map

How does one define a “global hotspot?” Experts agree there are varying levels of risk associated in different regions of the world. That risk can involve security, IP protection, environmental issues, political corruption, and infrastructure and supplier maturity risk. 

“In many cases, this risk can be escalated by particular events, but the ‘hot spot’ designation refers to the set of conditions where the risk of doing business requires additional processes,” said Lorcan Sheehan, Senior Vice President, Marketing and Strategy, ModusLink Global Solutions, Waltham, Mass.

What are the major trouble spots in the world today? “Currently, there is a lot of uncertainty in the eurozone in terms of the markets,” said Paul Martyn, Vice President of Marketing, BravoSolution, Chicago. “In addition, there is continued uncertainty in countries affected by the Arab Springs and the Middle East in general. In terms of political uncertainty and the prospect of violence, North Korea, Iran and Afghanistan are other wild cards.”

Some may argue that cataclysmic global events have always been with us; there is simply more media coverage of such events today. And to some extent, that is true. Instability ebbs and flows globally, so it is always encroaching somewhere.

“Instability is diminishing in the Balkans with the exception of northern Kosovo, but growing in Pakistan,” explained Ed Daly, Director of Watch Operations for iJET Intelligent Risk Systems, Annapolis, Md. “Within Mexico’s drug war, violence ebbs and flows area by area, sometimes day-by-day or week-by-week, driven by arrests of kingpins that spark turf wars with competing gangs.”

The growing globalization of business is another key factor that complicates the situation.

“Supply chains have become more global and they continue to run in areas of high risk,” Sheehan added. “In many cases, they run with additional security and other precautions. The benefits of locating supply chain functions in these regions need to be weighed against the risk and the cost of mitigation.”

Globalization has led to longer supply chains, with many hand-offs between companies and modes of transport, which translates into greater fluctuation in lead times. What’s more, globalization has coupled with outsourcing, which leads to less visibility and less control within the supply chain.

“The quality standards in BRIC countries [Brazil, Russia, India and China] and nations such as Singapore, Vietnam and Thailand that focus on outsourcing are often not up to Western standards,” said Trevor Miles, Vice President of Thought Leadership, Kinaxis, Ottawa.

Companies that lack a real-time visibility or monitoring system are at the mercy of instability— exposed to situations beyond their control. These companies operate in the dark and could be blindsided by events.

“As a technology provider, this is the number one problem we see today,” said Greg Kefer, Director of Corporate Marketing, GT Nexus, Oakland, Calif. “Almost every corporation is running a global supply chain but few have any kind of monitoring and control system in place. Because of this, these companies are at risk.”

Manage the risks

So what’s the solution? Supply chain executives need to be aware of geo-political issues, economic conditions and unplanned events (like natural disasters) to determine the risk related to doing business within various countries. Jim Lawton, President of D&B Supply Management Solutions, Short Hills, N.J., said companies need to address the following factors in order to ensure comprehensive risk management: