July 2015 | Commentary | Risks and Rewards: Risk Management Strategies

6 Global Supply Chain Challenges To Ignore at Your Own Risk

Tags: Supply Chain Management, Global Economy, China, Logistics

Adam Brosch is Director of Global Sourcing, Berlin Packaging, 1-800-2-BERLIN

Along with the many benefits that come from sourcing outside the United States, such as low-cost manufacturing, several issues must be properly managed to ensure a successful supply chain. Finding a rock-bottom price in China or India is not the problem, but landing great costs while avoiding distance, timing, quality, and language problems can be challenging.

If you ignore or mishandle these risks, they can result in cost penalties and distracting inefficiencies. Identifying the risks up front, so you know what to look for, can be the key to success. The following six risks can easily have a negative impact on your business:

  1. Quality levels and defects. Manufacturing processes aren't perfect, so the industry typically accepts a certain quality level for products. Complexity and variability are part of any production process, and unfamiliar sources might not adhere to accepted U.S. defect levels. Choosing a non-U.S.-based sourcing firm can open up questions and disputes about which party is liable for defect percentages that rise above normal.
  2. Time zones. Some U.S. firms experience issues when dealing with companies on the other side of the country—and never mind the 13-hour time difference between the United States and Asia. Waking and working hours do not coincide, which can be a challenge when a pressing issue arises. Waiting one day to clarify a product question or process change can often simply be too long for companies that are trying to run nimble operations.
  3. Long-range logistics. Purchasing items at a delivered price is easy, but the shipment can be delayed. Whether it is a factory hold-up or transit problem, ignoring the complexity of long-range logistics can be a risk.
  4. Accountability and compliance. Companies should consider social compliance every time they look at global sourcing. They need to conduct due diligence about child labor practices, acceptable working conditions, forced labor, and fair compensation practices. Barring the hiring of local staff members, however, there isn't a surefire way to ensure social compliance from across the globe. Risk comes in the form of severe brand damage due to unfair or illegal practices that come to light.
  5. Delays. To receive on-time product delivery, it is vital to have firm completion dates and shipping timeframes. An item that is globally sourced, however, is often just a piece of a bill of materials that must be on hand for product completion. Delays from a non-U.S. source can derail production and drive up related costs.
  6. Language barriers. Global partners offer competitive pricing and efficiencies, but still often conduct day-to-day business in a different language. Managers will likely speak English, but their directions must be relayed to line staff, and your own words might be lost in translation. Errors are bound to happen when communications aren't translated and interpreted perfectly.

These six factors present mighty risks, but they are not insurmountable. Companies looking to take advantage of global sourcing opportunities can build their own teams located in the United States or abroad, or work with experienced partners to mitigate and remove these risks. The benefits of sourcing from outside the country can be great when handled properly.






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