As technology and business advance, customers and suppliers are accessing foreign markets previously out of reach. Companies now face global competition and unexpected disruptions that didn’t concern a decade ago.
The supply chain, often overlooked, is highly vulnerable to economic upheaval and shifting customer demands. As a crucial component of a company’s operation, managers need to identify, quantify, and mitigate risks. A recent Chartered Institute of Procurement and Supply (CIPS) study reveals that global supply chain risk is at its highest since 2013, driven by economic and environmental instability worldwide.
The Main Key Factors Affecting The Global Supply Chain:
Economic Risks
These vulnerabilities reflect a diverse set of global challenges facing companies. The effects of economic slowdown and political upheaval are particularly impactful on the supply chain. As currency fluctuations, instability in demand and prices, changing labor costs, and inflationary pressures make it impossible for firms to accurately plan their investment in foreign markets.
For many companies, this means they must instead opt for a shorter and simpler supply chain. If outside procurement is necessary, companies must keep close communications with suppliers to ensure they are flexible enough to monitor, and quickly react to changes in the market.
Environmental Risk
These risks can be both internal and external. Natural disasters and other extreme weather conditions comprise the bulk of external environmental risks companies will face. Earthquakes, floods, storms, and tornadoes can close airports, docks, and roads, delaying shipments and disrupting travel and communication.
Internal risks can arise from improper health and safety and goods management procedures. These can cause fires, spills, chemical leaks, and other environmental hazards that result in the shutdown of storage or shipping facilities.
While weather conditions are unpredictable, you can develop reaction plans and guidelines for suppliers to handle disruptions. Ensure strong communication systems are in place and that contracts address potential delays from environmental factors.
Political Risk
Terrorism, government policy changes, systematic corruption, and energy crises. These are just some of the geopolitical issues facing firms that operate in the international marketplace. If a country pulls out of a mutually beneficial trade deal or starts to pursue protectionist policies it can severely affect the terms of your international dealings. While the possibility of expensive shipments being commandeered, or a delivery channel being closed due to security threats is also a very real possibility.
Companies must be aware of the political trends in the country they are receiving supply from. Technology can be used to develop an overall picture of possible risks, while certain insurance policies will cover companies against the threat of embargoes or canceled licenses. It may be necessary to establish an on-ground presence through an IOR or EOR to ensure the delivery of goods at agreed prices.
Supplier Risk
Outsourcing crucial operations exposes you to risks like inaccurate shipments, poor communication, and potential supplier insolvency. Conduct thorough screening and regular assessments of suppliers to ensure compliance and reliable delivery. Collaborate to identify and mitigate potential risks.
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