Commentary: Managing risk in the global supply chain

Tom Cook, managing director of Blue Tiger International, discussed the negative effects of risk exposure in the global supply chain and how to manage those risks.

   The World Economic Forum defines global risk as an uncertain event that, if it occurs, can cause significant negative impact for several countries or industries within the next 10 years.
   Global supply chains create both opportunity and risk. Some of the macro issues we face both in day-to-day operations and future planning include cybersecurity, terrorism, climate change, economic instability, and political discord.
   More specific to executives who manage global supply chains, risk is more apparent, and on a micro-basis potentially more consequential in the short term, in areas such as but not limited to reducing spend, leveraging sourcing options, creating sustainability, political and currency instability, government regulations in the U.S. and abroad, trade compliance management, free trade agreements, energy costs, and what the incoming Trump administration will mean for global trade.
   Since the recession in 2008-2009, we have witnessed a serious uptick in companies worldwide reviewing their operational exposure and then creating risk strategies in managing these vulnerabilities. Risk exposure can negatively impact margin, profits, growth strategies, operational stability and personnel maintenance.
   For companies operating in global supply chains the risks are vast, convoluted and often unanticipated. As a result, we tend to be unprepared for the impacts.
   Think of issues we have all had to deal with in the past few years in managing our supply chain responsibilities: the 2016 Cyber Security Breach at Yahoo; the 2011 tsunami in Japan; BREXIT in Europe; regulatory changes with CBP, BIS, FDA and TSA, to name a few; the high cost of fuel and now the low cost of fuel; the longshoreman strike on the U.S West Coast in late 2014 and early 2015 and the brutal winter weather in the Northeast the same year, China and Kazakhstan (among others) devaluing their currencies in 2016, conflict minerals out of Africa in 2013, and so on.
   These threats create a “clear and present danger” to the management of our global supply chains, but there are ways to mitigate and in some cases even eliminate exposure to them.
   First and foremost, senior management must be both engaged and supportive of any risk management strategy. Risk can either be assumed, transferred or mitigated, and each outcome has associated costs on which senior management must provide guidance.
   Risk managers typically focus on traditional risks in the property, liability, worker’s compensation and auto arenas. Once you enter the global supply chain, however, the landscape changes significantly and risk managers must increase their bandwidth and knowledge base.
   The impacts of risk and spend have consequences that spread into numerous corporate verticals – finance, operations, manufacturing, purchasing, logistics, inventory, etc. – all of which must be committed to the risk strategy that is ultimately developed.
   Risk management is typically the silo to spearhead administration of a corporate strategy to reduce exposure. The unique comprehensiveness and convolutions of the global supply chain, however, requires a coordinated effort aligning logistics, purchasing, foreign operations and export sales management teams, the “front lines” of international business operations.
   It is imperative to perform an assessment in order to benchmark your supply chain with respect to risk exposure and potential consequential impacts of various global events, both on a macro and micro basis, as well as develop a resource base to learn what expertise is required and where you can go to get answers.
   Once the assessment is complete, work with senior management to create a strategy for assuming, transferring or mitigating the most pressing threats and an action plan for implementation of the strategy. This requires intense internal collaboration with C-level executives, but training management and staff on managing risk in the global supply chain is what will ultimately determine the success or failure of your strategy. The National Institute for World Trade (NIWT.org) and the Risk Management Society (RIMS.org), for example, are excellent risk management training centers.
   In addition, the strategy must contain an internal or outsourced audit component to measure the company’s progress and ensure its risk profile in the supply chain has been effectively minimized.
   In my experience, most risk management strategies are simply reactive, adjusting to supply chain events as they come up, but proper strategic planning must always be proactive. Risk management by its very nature creates predictability, which can lead to securing the hatches before the storm even begins – a much better path to reducing the likely and the not-so-likely risks we face.
   Risk can be assumed, transferred or mitigated; any one or combination thereof will work. There are qualified insurance brokers and underwriters who have teams of specialists available to help you through the best options for the specific nuances of your supply chain.
   Proactive strategic planning in global supply chain risk management can help protect profits, margins, revenue growth, personnel, and most importantly, opportunity!