Four reasons a global supply chain can be risky business
Doing business abroad definitely has its benefits, but it’s also risky business as the global supply chain can bring on a slew of unique disruptions, political unrest being a top concern right now for international retailers.
Bangladesh, whose apparel industry accounts for 80 percent of the country’s total exports, just started breathing easy after dealing with the aftermath of a 2013 factory fire. Unfortunately, now a period of intense political unrest is causing major disruptions in raw material supply. The garment industry is experiencing big losses due to a decline in orders from international retailers, order cancellations, soaring air freight charges, production shortfalls and higher transportation costs.
Although it’s impossible to completely eliminate risk from your supply chain, being aware of the possible risks can help to mitigate any issues that may arise. Here are four risks that retailers need to prepare for when doing business abroad; especially in emerging markets.
- Rising Regulations: New regulations continue to pop up along the supply chain, and uncertainty around these new rules can stall decision making and planning. Depending on the region you’re operating in, you’ll face different regulations, which will inevitably pose challenges for compliance. Getting visibility into your supply chain and gaining tighter control over your materials is imperative so you can be agile in complying with new regulations.
- Foreign Exchange: Currency exchange rates are always in a state of flux, causing investment values to continuously fluctuate. Commodity prices are also subject to inflation, which can result in pressure from low cost competitors. Thoroughly analysing spend to see where your money is going gives you an idea of how you can reallocate your resources and lower the costs for consumers.
- Geo-Political risk: When conducting business in emerging markets, it’s very important to conduct an assessment of the current host government, its stability, and overall attitude toward trade and foreign direct investment. Having an alternate list of suppliers at the ready and leveraging E-sourcing to understand what products and price points are out there will help you confidently pull the trigger on a new order should your original list of suppliers be unwilling to trade.
- Extreme weather events: Natural disasters always pose a real threat to the supply chain – shipment disruptions, delayed operations at fulfillment warehouses and increased consumer demand can all result from natural risk. It’s important to understand how likely natural disasters are to impact your suppliers and have a source of backup supply at the ready to bridge against supply shortages and hiccups.
Global business is risky business because the global supply chain can deliver efficiency, but can also increase risk in the process. Although it’s important for CPOs to pay particular attention to reducing costs and generating financial value, especially during difficult market conditions, it’s vital to establish a balance between focusing on costs and risks. Effectively mitigating risk areas can be a pivotal step toward long-term success. How are you bolstering your risk management strategies for global growth?
By Mickey North Rizza, VP of Strategic Services at BravoSolution
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