A truly global supply chain builds its success on flexible, well integrated systems by

accommodating customer requirements.

IDENTIFICATION OF RISKS IN GLOBAL SUPPLY CHAIN

With the advent of new technology, we have created a world where there truly no boundaries
in the business we do ad the transactions which are carried out there in. As companies increase
their business in volume and geographies (as they venture into new markets and segments),
the supply chain expands into a global form and we see a global supply chain emerging. Apart
from the benefits the GSC offers, we cannot neglect the complications they bring in. The
interdependencies that create complications in this kind of supply chains should be considered
while identifying the inherent risks.

The most elementary way of classifying the supply chain risks is Internal and External risks. The
internal risks would be those which arise from the operations or mechanisms put into place by
the firm. These are within the firms control. External risks are those which are not within the
control of the firm. These could range from macro-economic factors to political to
environmental issues.

The following part will throw some light on the details of the internal and external risks that
have been depicted in the above diagram.
As any organization expands its operational network operationally, its supply chain must adjust
to take into consideration the international risks involved in this. The external forces involved
can be any or all of environmental, geo-political or economic risks, each having varying degree
of influence on the entire supply chain. Among these too, environmental factors which include
natural disasters are the most difficult to predict and control in comparison to the political or
economic factors. When deciding on a global supply chain footprint, it is important to
understand both the probability of external risk factors and create a mitigation plan for
manageable risks that allows for a healthy and successful global supply chain.

Following are some of the important risk categories that need to be identified in order to be
mitigated later:

Macro-environment Risks-

These are the various external factors which can potentially impact the entire supply chain. For
example, globalization opens up the businesses to cheap labor and materials and creates
opportunities in new markets. But it also makes the supply chain complex and magnifies the
impact of disruptions which, earlier, might have remained locally isolated such as natural
disasters, political turmoil, piracy, and regional economic crises.

Extended value chain risks-

These are concerned primarily with a companys upstream and downstream supply chain
partners. Excessive use of outsourcing, for example, has improved efficiency and allowed
businesses to revolve around their core competencies. But it has also increased the
complexities involved in its operations and made them vulnerable to the threat of third-party
risk. Similarly, supplier consolidation can be a double-edged sword. While it creates economies
of scale and ensures that the day-to-day operations are more predictable and consistent, it also
exposes the business to the threat of major supply disruptions by concentrating all of a
companys eggs in fewer baskets. Recent events have shown that if a critical supplier runs into
quality problems or its operations are disrupted by a labor dispute, natural disaster, or
financial struggles the resulting turmoil can send shock waves across a companys entire
global supply chain.

Operational risks-

These are largely attributed to the production processes such as product development,
manufacturing, and distribution operations. Several innovative methods such as lean
manufacturing, just-in-time inventory, and capacity rationalization have made a significant
positive impact on the supply chain efficiency and made businesses more agile and responsive.
But by reducing the slack time in the network, they have also reduced the margin for error and
magnified the disruptive potential of the faults.
Apart from identifying the external categories in which the risks fall into, it is necessary to have
a framework or a tool to identify potential areas in the supply chain which might cause these
risks. Some of the methods used to identify risks are mentioned below:

ULs Global Risk Index quantifies the social and labor risks by examining various macro factors
economic, social, political, and labor rights. Globally-respected indices from groups such as: the
United Nations, Transparency International, The Heritage Foundation and Freedom House are
taken as a benchmark. This extremely detailed and minute information from workplace
assessments is aggregated and provides rich insights into the practical reality across the supply
chain.

Self-assessment workbook by LCP consulting- This is a framework that provides a methodology

for organizations to help them identify the vulnerabilities that may have got into their various
supply chains and to provide support for mitigating and contingency actions. The company is
first asked to identify and properly define its supply chains. Then the company is encouraged to
test each of its chains with the six dimensions of possible vulnerability to determine the
potential problems. Finally, attention is paid to the exposure of the company in each of these in
terms of the four key risk characteristics: scale, duration, recovery and cost.