Risks in Global Supply Chain - Global Risk Management Institute

Risks in Global Supply Chain

The modern economy depends on sophisticated and complex supply chain chains. Modern supply chains are also vulnerable to various risks creating short-term costs and delivery challenges. There are constant changes in the modern supply chain and these changes are inevitable. Risk management is necessary to counter supply chain risks. Supply chain exists in air, land, and ocean freight. Poor assessment of risks in the supply chain will increase the cost of the freight spend and will diminish the value of the brand. Understanding global supply chain risks will help to reduce the impact of the risk.

Risks in Global Supply Chain-GRM Institute

 

The most important risks in Global Supply Chain are:

 

Trade wars

Trade tensions around the globe increase the imposition of new import tariffs on a large number of consumer products and industrial components. The prevalence of trade wars creates uncertainty around the globe. The increase in prices makes raw materials harder to obtain creating a disruption in the supply chain.

 

Shortage of raw material

Many key raw materials used in production are highly globalized. The key materials can become vulnerable to widespread disruption due to demand spikes or production bottlenecks.

 

Environmental risks

Environmental risks are least effectively mitigated and are generally uncontrollable. Natural disasters like earthquakes or extreme weather situations are very difficult to manage. Ocean carriers can be tossed with tropical storms. This creates an uncertainty in the operations due to loss of material. Flooding, earthquakes, and storms can close off roads, airports, and docks resulting in delaying shipment of goods.

 

Economic uncertainty

The supply chain can seriously get disrupted due to the effects of the economic slowdown. Economic uncertainty increases financial pressure on lower-tier industries and suppliers. Companies have to keep close communications with the supplier in case of outside procurement so that they are flexible to quickly react to the changes in the market. According to a survey by the Chartered Institute of Procurement and Supply, ten percent of U.K. businesses having EU suppliers could become bankrupt in event of customs delays due to Brexit.

 

Industrial unrest

Strikes and overtime bans by workers can affect transport mode anywhere around the world. Port strikes generally last longer which affects the supply chain in the market. Industrial disputes affect a significant number of ongoing transport operations in various regions of the world.

 

Supplier risk

Trusting an outside party for your business means you are vulnerable to risks such as inaccurate or delay in the shipment of goods, communication problems, and even the risk of suppliers going out of business. It is very important for businesses to conduct due diligence and screening of suppliers before onboarding them. Businesses should also conduct periodic assessments to ensure that there are no changes in compliance or delivery of goods. Supplier risk is a major risk in the supply chain and both the parties will have to work together to understand various risks and should take steps to mitigate them.

 

The supply chain industry is continually evolving and is becoming more strategic with disruptions turning into board-level issues. Supply chain risk management can help to evaluate the risk environment and will help in developing a strategy to protect the bottom line of the company.

 

Contributed by Shahran Sayyed (PGDRM Jan’20)

 

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