The COVID-19 pandemic has thrown new light on the importance of developing a comprehensive and effective management strategy for tracking and limiting risk in your company’s international supply chain.
If you don’t have a risk management framework in place, you won’t be prepared to deal with future external threats to your business’s supply chain like political and economic upheaval. You also won’t be able to respond efficiently to internal breakdowns in transparency and connectivity between employees.
There’s a wide variety of risks that international supply chains face. Here’s a look at what — and how — companies are managing today.
Economic or political instability. Major changes in global markets and the macroeconomic climate can threaten international trade, potentially causing your manufacturer or carrier partners to go bankrupt and affecting your company as a result.
Political instability can also create a considerable risk to your global supply chain, particularly if you use suppliers or manufacturers based in countries undergoing unpopular governmental changes.
Unforeseen events. Unpredictable health and environmental catastrophes like COVID-19 or raging and widespread wildfires can have significant effects on your company’s global supply chain.
Pandemics can affect a business’s ability to receive products from suppliers in countries around the world. At the height of the pandemic, the container shipping industry was forced to cut costs drastically, resulting in reduced capacity to transport goods across the globe and causing significant delays.
Poor connectivity. Poor connectivity in your international supply chain may be more of a predictable and known risk than political upheaval or environmental disasters, but it’s still a significant risk to your company’s success. If you fail to invest in a system or logistics program that integrates all aspects of your supply chain and allows you to monitor your product’s journey to the customer’s door, you risk limiting global chain visibility and alienating your clients.
Invalid or outdated data. Sending or receiving invalid and outdated data is another predictable risk to your company’s supply chain, and it’s also easily avoidable by using the right software system. If you provide your contracted carrier team with incorrect information, they’re likely to deliver the merchandise to the wrong place, which results in a dissatisfied customer.
Tracking and Managing Risk
It can feel overwhelming to deal with monitoring and managing risk to your company’s international supply chain because unknown dangers can impact different sections of this chain. However, there are a few key steps you can take to track and limit these risks.
Measure your carrier’s performance. Whether you use a common or a contracted company to transport your products to your customers, you must ensure this carrier consistently performs to a high level.
Check individual metrics like transit time, shipping time, loading and unloading time, number of carrier delays and the average shipping costs.
If your delivery company is underperforming in any of these areas, you may have to change carriers to increase your profits. If you own a dropshipping business or a relatively small company that ships individual packages sourced from China or Hong Kong, you could also consider adopting ePacket delivery — a shipping option offered by third-party logistics providers (3PL) in both regions.
Using ePacket shipping allows you greater control over the shipping process with end-to-end tracking and streamlined customs. The method is developed and implemented between China Post and USPS, and it offers a more affordable way to ship goods quickly.
Track revenue loss during unforeseen events. Tracking the total amount of revenue your company loses due to one of these unknown and unforeseen dangers can give you the information you need to develop a more robust risk management framework.
You should also break down this net total to see how much money you’ve lost in each part of the supply chain. This is an effective way to home in on where you can improve overall systemic efficiency.
Adopt a risk index value method. When you’re drawing up a new risk management strategy for your company, you should take each potential risk in turn and assign it a score that reflects the level of danger it poses to your international supply chain.
McKinsey & Co. suggests basing this scoring system on three main components: the probability of the risk occurring in reality, how prepared your company is to deal with this risk should it arise and the financial impact on your company if the risk does transpire.
Applying this scoring system to all the risks associated with each part of your international supply chain allows you to see which dangers pose the greatest threat to your company and helps you focus on strengthening the defense structures in weaker links of your chain.
Set up regular reviews. Once you’ve set up a comprehensive and effective risk management strategy for your business, ensure there’s a governance structure in place that analyzes and reflects on relevant risks to your supply chain.
Ensure this panel includes managers from each section of the chain, from product designers and manufacturers to shippers, carriers and those in charge of last mile logistics. That way, you break down the risks into their separate sections to be more easily addressed.
It’s vital to review your risk value index regularly, as the individual score of each risk can change over time.
Delineate a standard of employee behavior. Try to define your standards when it comes to your employees’ behavior. The more respect that each employee has for your company, the more responsible they’ll feel for responding actively and effectively to any threats to the international supply chain.
They’ll also hold themselves accountable for mistakes and report to their line managers if they’ve misdelivered mail or sent the wrong data to the carrier company for shipment.
When you have employees who all hold themselves to high standards of transparency and accountability, you’ll be able to address potential risks quickly.
Invest in an integrated logistics platform. The best way to improve your international supply chain connectivity is to invest in an integrated supply chain management program or software. These online platforms allow every stakeholder in your supply chain to access and share information, making the whole process transparent from the initial supplier to the paying customer.
This type of integration decreases response and delivery times. It can also reduce costs and improve your company’s relationship with its customers.
When you use accurate metrics to measure carrier performance and assess the risks associated with each part of the supply chain, you can develop a comprehensive and effective risk management strategy.
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