‘Rethink your international supply chain initiatives’

Recently appointed supply chain director at Safcor Panalpina, Anthonie Verploegh, believes that management of risk within the supply chain is becoming increasingly crucial. In this article he offers some sage advice on achieving success in a volatile world market. Supply chains today are a lot more complex due to factors such as globalisation, fluctuations in suppliers’ costs, product innovation cycles, carrier capacity constraints and companies’ outsourcing strategies on activities such as manufacturing and global economic crises to name a few. In an age of resultant lengthening of international supply chains, recent events around the world have provided frequent reminders that we live in an unpredictable and changing world. Industrial disputes, natural disasters, terrorism and continued threat of war in volatile regions as well as the recent world economic turmoil have all resulted in serious disruptions to supply chain activities. In these situations, business as usual is often not an option. An article in Fortune magazine states: “The world is today going through a fundamental transformation on the scale of the Industrial Revolution some 200 years ago. We are moving to an information-based economy in which computing power, data storage and telecommunications are virtually free – hence the challenges are fundamentally different and deeply unfamiliar. The toughest jobs are the ones you don’t know how to do and in this new economy those are the ones we are faced with! “The economic revolution is complicating the way we do business. More importantly, customers have more power because they have information. They are more informed and know how much everything costs – and importantly how much you are charging in every market.” Business success is increasingly being linked to effectively managing international logistics and product-specific global supply chains. Increasing low-cost country sourcing and rising sales to global customers and markets are encouraging companies to seek new ways to manage these costs, complexities and uncertainties of moving goods across multiple borders and multiple modes. International supply chains and companies operating globally introduce other hurdles. The complexity and uncertainty within a supply chain also increases the risks within the supply chain. The effects typically result from unnecessary over-reactions and interventions and from misinterpreted data and information. International supply chain risk is further compounded by volatile oil prices and the resultant impact on freight costs, the impact of currency fluctuations and the focus on product development in non-US dollar regions, the impact of ‘green laws’ and environmental regulations. The question therefore arises whether organisations have to have a different view of globalisation if their strategy is to compete on cost, reliability, responsiveness or agility. What is very clear is that management of risk within the supply chain is becoming an increasingly important element. Questions being asked are: • Does buying from a particular low-cost manufacturing region still make sense if labour costs there were to rise by say 10-20%? • Do you still outsource and what activities do you outsource? • Are my suppliers/service providers reliable and do they perform consistently? • Can you still be profitable with these variables? Co-ordination of the financial impacts of the risk within the total supply chain therefore becomes essential together with the resultant impact on total supply chain cost management. In conclusion, consistent monitoring of your global supply chain is imperative for success. Organisations should manage and measure their risk and develop strategies for different possible future scenarios. Revisit your assumptions and rethink your international supply chain initiatives.