March 2011 | Commentary | Checking In

Managing Risk in a Chain of Fire

Tags: Supply Chain Management, Global Economy

Felecia Stratton is the editor of Inbound Logistics magazine.

Supply chain dominoes keep falling far and wide. In addition to man-made disruptions such as political instability, piracy, terrorism, and war, natural disasters such as the earthquake and tsunami that struck Japan on March 11, 2011, and the tidal waves that rippled throughout the Pacific ring including Alaska and Hawaii, have rattled the world over the past year. Tremblers in Chile, Haiti, Tibet, and New Zealand, the volcano eruptions in Iceland, and avalanches and flooding in Pakistan have taken their tolls to varying degrees.

From a macro perspective, these extraordinary events have a radiating effect on global supply chains. Businesses with any type of manufacturing operation within, or transportation activity near, the affected regions have to look more closely at sourcing strategies and contingency plans, whether internally or in concert with transportation and logistics partners. Even then, business logistics practitioners need to address country-by-country dynamics to determine whether locations are targets for expansion or aversion— and whether outsourcing strategies are preferable to offshoring.

To help shippers account for these shifting forces, Inbound Logistics’ seventh-annual Global Logistics Guide offers a layered analysis of regional trends and in-country snapshots that identify strengths and weaknesses, opportunities and risks.

Reacting to supply chain events and exceptions is one measure of managing global logistics complexity. Business leaders must also be proactive in exploring new markets to grow into, in terms of manufacturing, distributing, and selling. On the supply side, proximity and responsiveness to U.S. demand and cheaper transport costs may offset labor differentials. Alternatively, capitalizing on emerging consumer economies promises growth opportunities.

When the U.S. economy tanked and imports dried up, many companies began looking to expand export markets. Asia is no longer simply a place for cheap manufacturing, as you’ll read in Lisa Harrington’s article, Asia: Manufacturing Dynamo or Consumer Powerhouse? Asia’s middle class is growing by leaps and bounds, and U.S. companies are beginning to tap this explosive demographic. Similar prospects can be found elsewhere around the world. Managing import and export trades between multiple supply and demand points creates additional layers of complexity— or, from a different perspective, affords greater flexibility to manage and circumvent exceptions as necessary.

You can never manage or mitigate all risk, as recent events indicate. But, if you match demand to supply, and operate a flexible and scalable logistics operation, you can absorb and dissipate the forces of natural or man-made upheaval, and put out most supply chain fires before you get burned.