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Managing Global Supply Chain Risk

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managing global supply chain risk

In the wake of the novel Coronavirus pandemic, global supply chains are facing an unprecedented and massive disruption. COVID-19 has led to nationwide lockdowns, causing distribution companies and suppliers in the chain to cease operations until further notice. Consequently, the impact is widespread, and many corporations are rethinking and remodelling their supply chain systems.

Let us explore how supply chain works to understand the impact of COVID-19 on a global scale. We will also cover some robust actions that businesses can take to help in managing global supply chain risk.

Supply Chain Management

Supply chain management (SCM) is one of the most competitive industries today.  But what does it really constitute of? Supply chain management is an active management of the flow of goods and services by keeping customers top of mind. It is a highly detailed system involving the movement and storage of raw materials from work-in-process inventories and finished goods from the point of origin to the point of consumption. Moreover, supply chain management is driven by customer demand and satisfaction. The goal of the entire SCM process is to coordinate activities of supply chain members seamlessly to meet the needs of customers at a profit.

The current scenario is unprecedented, and consumers’ needs are critical.  While global demand has dropped considerably for many products, there is a shortage of supply for others.

Impact of COVID-19 on Global Supply Chain Management

Thousands of freights have been grounded and laid aside. Movements across borders and ports are factually restricted to protective medical equipment and food supplies. A survey by the Institute for Supply Management (ISM) revealed that approximately 75% of organisations acknowledge supply chain disruptions due to coronavirus-related freightage restrictions. Additionally, more than 80% anticipate a rise in disruptions due to COVID-19. Of those, one in six (16%) businesses reported changing the sales targets down by an average of 5.6%.  The operational and financial ramifications are severe.

The pandemic is testing supply chain organisations in an exceptional manner. What are the possible ways for supply chain managers to respond and maintain continuity in view of such challenge?

 Managing Global Supply Chain Risk

Some recommendations may be outlined as follows in view of unforeseen events:

Build a supply chain risk management framework (SCRM)

Supply Chain Risk Management (SCRM) is a relatively new discipline in modern day supply chain operations. It is a mechanism that assesses nodes in the value chain and identifies supply chain risk. At the frontier of supply chain management, firms should have their SCRM framework established; in any event that risk materialises, the probability of the corporation’s readiness to respond to that elevated risk would be high. This enables risk prioritising to classify the most vulnerable merchandise and value chain nodes with the greatest potential for disruption. Therefore, it is crucial to formulate and use a clear SCRM framework for the evaluation of all risks and activate alternate supply chain options when required.

Review cargo insurance and risk policies

With travel restrictions, detained production, cargo in transit may be delayed, rerouted or withdrawn due to port closures; it may take months to clear up the backlog. Thus, in the occurrence of a force majeure, it is vital for cargo companies to review their supply chain insurance coverage and risk policies as the carrier company cannot be held liable. Although cargo delays are usually not covered, it is crucial to revisit the insurance policies when it comes to perishable goods and inventory. On the other hand, to protect the interest of logistics firms and customers, contractual terms and conditions may have to be reviewed.

Increase transparency among supply chain stakeholders

It is the time to be more transparent than ever with the supply chain stakeholders. Amid the disrupted supply chains, uncertainty and complex decision making, regular, prompt, and explicit communication is vital. Decisions need to be communicated in a timely manner both internally and externally.  Supply chain managers ought to encourage teams to operate as a virtual network during remote working circumstances like these, mobilise them with the tools and key resources they need to continue working productively. More importantly, meeting their mental needs as well as ensuring the physical safety of those urgently required on site.

Proper management of cash and working capital

Proper cashflow management cannot be neglected during the volatile time.  Companies may try to reduce their variable costs to meet fixed costs. Inventory can be sold at discounted prices. Collection processes from receivables may be shortened to secure cash inflow. Conversely, can assets be leased to raise cash? It could also require firms to overlook their future investment commitments and allocate the funds that prioritise demand and liquidity. At the same time, if necessary, firms can utilise their cash reserves to remunerate employees, pay rent or settle supplier debt.

Embrace Supply Chain 4.0

Supply Chain 4.0 encompasses Internet of Things (IoT), the use of advanced robotics, the administration of big data analytics, building networks and automating every level to sharply increase efficiency and customer satisfaction in supply chain management. To mitigate supply chain disruptions, organisations need to amp up their end-to-end processes using artificial intelligence, industrial robots, automation, 3D printing. Supply chain 4.0 gives competitive advantage to firms by streamlining operations on a global scale. Regardless, supply chain 4.0 has emerged in high income economies, we must admit that, in the future, many countries will have to turn to 4.0 technologies in response to global supply chain disruptions.

All in all, these were some possible approaches to respond to a major supply chain disruption.  Nevertheless, it is not a matter of responding to it as a one-time crisis. Managing global supply chain risk necessitates planning for rebound, continuous monitoring of disruptions and robust adaptation to build resilience. Resilient and sustainable supply chains, in turn, lead to enhanced customer satisfaction.

Supply Chain Management credentials offer a range of career prospects, employment security and future growth potential. It is the right time to upskill with a 1-year certificate or a more in-depth 3-year degree. Find out more about studying Supply Chain Management.

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