Political risk Understand what’s going on around a supplier’s location. Is the leadership stable? Do the decision-makers and their policies foster a healthy business environment?
Economic risk Determine if a country’s finances—debit, credit rating, currency—are stable. Is a particular country a hot pocket of activity? Or will the country sustain long-term growth? Currency volatility is starting to have a major impact on supply chains. How can companies hedge against these fluctuations?
Commercial risk Gather all the information possible before partnering or buying from another firm, even where raw materials are sourced for a specific product. Global trade is not an isolated business. It’s important to determine whether other companies (particularly competitors) want to source from a certain area.
Track the data for the most accurate results
How can organizations mitigate supply-chain risks in unstable regions? IJET Director of Operations Johan Selle said that gathering accurate, real-time intelligence is essential.
“By implementing a process that monitors categories across all hazards 24/7, the organization can ensure that intelligence relevant to any potential threat is distributed to stakeholders within the supply chain to ensure that timely decisions are made,” he noted.
Companies should also provide all relevant stakeholders—truck drivers, distribution warehouse managers, suppliers and corporate supply chain managers—with a 24/7 emergency phone number to ensure that specific protocols are used and that a response is activated in a timely manner.
In addition, companies should employ a software solution that enables visualization of relevant supply chain assets (manufacturing facilities, suppliers, warehouses, ports, sales points) and relevant threats. This allows companies to easily determine whether potential exposure exists and centralize access to relevant data that is critical to managing risk within a supply chain.
Companies should also build a culture of awareness to combat threats to the supply chain. This awareness allows companies to quickly respond to changing levels of risk in unstable regions. However, building a culture of awareness requires a team effort within the organization.
“This is a critical issue,” said Scott Byrnes, Vice President of Marketing, Amber Road, East Rutherford, N.J. “Salespeople are motivated to get the sale, so their objective is to procure a big order from a foreign country. Whereas the objective of compliance people is to make sure the transaction is legal. There’s a bit of a notion of competing interest here, which gets to the corporate culture relating to global trade compliance.” In a perfect world, all parties are “in the loop” and pulling in the same direction.
Head-to-head with Mother Nature
Environmental disasters in 2011 provided a major test for supply chain executives. “It’s harder than ever for companies to hedge their supply chain bets,” said Lawton. “The past year taught us that companies need to have contingency plans in place. Organizations that had vetted secondary sources of supply before the March tsunami in Japan or the October floods in Taiwan had a critical head start over their competition. They knew what components were at risk because of visibility into multiple tiers of their supply base and they knew where to go to negotiate new sources.”
Indeed, the earthquake in Japan and recent flooding in Thailand demonstrate how environmental disasters can affect supply chain efficiency. “Given that 40 percent of the world’s hard drive production is centered in Thailand, the flood was a tremendous hit to the electronics industry during a time when the industry was gearing up for peak demand of the holiday season,” said Martyn. “However, we have seen proactive activity by leading electronics companies (Apple, specifically) to rationalize products and focus on reaching much of the sweet spot of demand with the given capacity.”
A key takeaway for hard disk drive (HDD) suppliers now enduring the crisis in Thailand is to study the painful lessons learned from the disaster in Japan, especially how to be flexible with production capacity, according to Dee Nguyen, memory analyst at market research firm IHS iSuppli, El Segundo, Calif.