80
GLOBAL SUPPLY CHAINS Global supply chains evolved during a period of unprecedented economic growth and tech- nical development, which allowed companies to cut costs and create complex global networks. During this period, supply chains became a key element of corporate strategy, able to significantly contribute to competitive edge and profitability. At the same time that sourcing and supply chain strategies were going global, they were also being stripped out to go lean and ‘just in time’. What has become evident is that this combination of strategies has significantly increased supply chain risk. The adoption of lean practices and supply chain globalisation are not of themselves bad, it’s just the stretching of both to achieve lower costs without a full understanding of the risks that is where problems arise. TRANSPARENCY When supply chains go global, organisations can lose transparency. With increasing complexity, there are more points at which the supply chain can be disrupted. Supply chain risks are constantly changing and it creates a challenge for companies to keep up to date with the ever changing risk landscape. One of the most significant and little recognised risks in recent years has been resource volatility, which in fact it is one of the most fundamental. In 2008, the price of oil hit $147 a barrel before collapsing to less than $40 in January 2009. Since then the price has climbed steadily, albeit with a number of fluctuations, to around $110. Volatility in every key resource is increasing, making supply chain cost and continuity less predictable. Many supply chain management processes do not provide enough transparency to identify and predict future risks. UNPREDICTABLE BECOMING PREDICTABLE Many supply chain disruptions are by definition, unpredictable but that does not mean they are impossible to prepare for. For example, many businesses were caught out by the volcanic eruption in Iceland, which created an ash cloud in 2010. However, logistics giant DHL, a company that could have been affected more than most, actually minimised the impact by quickly switching to ground transport. This was the result of a business contin- gency plan that, while not specifically predicting a volcanic eruption, did predict the possible closure of western European airspace. REASSESSING SOURCING STRATEGIES Organisations are increasingly reassessing the sourcing strategies in the light of changes to the global economy. Many organisations that moved their suppliers offshore to cut costs are now thinking again, partly because costs in markets such as China have risen. In some industries, costs are now lower in Romania than in China. However, there is also a view that it might be better to have suppliers closer to home to mitigate supply chain vulnerability. HOLISTIC SUPPLY CHAIN RISK MANAGEMENT The development of strategies which simultaneously make supply chains more complex and vulnerable, would indicate that businesses are not very good at assessing how one risk affects another. Effective supply chain risk assessment does require an ability to look holistically at risk and understand relevant linkages. For example, climate change increases water shortage risk, which in turn reduces agricultural output and pushes up food prices. This is likely to exacerbate poverty, leading to an increased risk of political unrest. This chain of events, combined with more widespread political unrest in North Africa, was a contributing factor to the events in Egypt in 2011.
Powered by FlippingBook