January 2012 | Commentary | Supply Chain Security

Are You Effectively Managing Supply Chain Risk?

Tags: Risk Management

Karen Lobdell is director, global solutions at Integration Point, 704-576-3678

The events of Sept. 11, 2001, changed the way global businesses operate. The need for supply chain transparency has expanded beyond shipment tracking to include knowing trading partners' background, the processes they handle, and the risk inherent at each stage of the supply chain from the factory floor to ultimate destination.

Many regulations affect the safety and security considerations shippers must address, including:

  • Product safety. The Consumer Product Safety Improvement Act (CPSIA) makes it critical for companies to monitor overseas business partners to ensure imported products are safe.
  • Environmental concerns. The Lacey Act, which combats trafficking of illegal wildlife, fish, and plants, requires importers to certify country of origin and details such as the exact genus and species.
  • Food safety. The new Food Safety Modernization Act provides the Food and Drug Administration with enhanced authority over imported goods. It includes establishing that importers have an explicit responsibility to verify that their foreign suppliers have adequate preventive controls in place to ensure they produce safe food.
  • Labor issues. The California Transparency in Supply Chain Act, which went into effect on Jan. 1, 2012, is intended to bring visibility to forced labor and human trafficking by requiring companies to ensure suppliers comply with company standards.
  • Social responsibility. Corporate social responsibility is receiving more executive attention as regulations address environmental concerns and fair operating practices, such as the Foreign Corrupt Practices Act.

A Global Effort

Although these regulations and initiatives are U.S. law, they are not limited to the United States. Similar regulations exist in other countries. Customs administrations and other government agencies continually seek ways to focus limited resources on high-risk shipments crossing international borders.

The ability to facilitate trade to boost speed to market is directly related to the level of risk presented by an importer/exporter. With ongoing supply chain threats, it is wise for companies operating across borders to consider what steps they can take to minimize risk, and position themselves to be deemed a trusted trader.

Risk assessment efforts are most effective when initiated early in the decision-making process. Global sourcing decisions must look past cost factors because the cost of skimping on risk management can be high. Consider the retailer who was fined $2 million and prohibited from importing or entering goods into U.S. commerce after violating CPSIA rules. Or the well-known sports apparel retailer that was fined $1.5 million to settle allegations of unfair labor practices overseas.

Determining risk is a qualitative/quantitative process that evaluates threats, vulnerabilities, and consequences. Although companies may not have control over all supply chain threats, they must have a clear understanding of where those threats exist. Properly evaluating trading partners helps identify vulnerabilities and mitigate potential risk.

As companies continue to increase their global procurement, direct importing, and offshore manufacturing and assembly processes, logistics professionals need to be aware of factors that may fall outside their specific area of responsibility, but have a direct impact on the supply chain and the timely movement of goods from origin to destination.