December 2010 | Commentary | IT Matters

Navigating Global Supply Chain Risks

Tags: Risk Management, Global Logistics

Danny Halim is vice president, industry strategies, JDA Software, 800-438-5301

Risk management is an essential ingredient in global logistics planning. Unexpected events such as natural disasters, political unrest, regulatory constraints, and product recalls can disrupt the supply chain and, in turn, negatively impact sales, profit, and a company’s reputation in the market. Many companies, however, are still in reactive mode when it comes to adapting their global logistics network.

How can you prepare your business for the evolving challenges in global transportation and logistics? Here are a few steps you can take:

  • Strategically evaluate your company’s global logistics network. Continuous network evaluation enables companies to quickly assess and rapidly adapt to cost and demand changes, especially when introducing new products, selecting new suppliers, or expanding into new markets. Ensure that all stakeholders across the extended supply chain are communicating. Failing to collaborate can result in extended lead times, late deliveries, and higher supply chain risk.
  • Manage the risk factors. Companies must anticipate and manage all possibilities for disruption, using supply chain tools to conduct scenario analysis and develop viable options to mitigate risks. Uninformed decisions based on inadequate data can hinder timely delivery of goods and cause stock-outs or product expiration.

Companies considering expansion into China and India, for example, quickly realize the inability to access detailed highway data until they are fully established in the country. While they may not be knowledgeable about network execution until actually conducting business there, factoring in contingency plans, building a proprietary transportation network, linking network design to inventory strategies, and increasing safety-stock levels can help maintain service levels and effectively access global markets.

  • Link transportation to inventory management. Visibility into logistics and transportation schedules provides a better understanding of the global movement of goods and helps companies maintain optimal inventory levels throughout their supply chains. Hedging against uncertainties has become a significant part of logistics costs in many developing or infrastructure-challenged countries.

For example, when sourcing from China or India, a company may carry an average of 40 to 60 days of inventory in the United States, whereas sourcing from Mexico or South American countries will require a company to carry only 30 days of inventory. Carrying extra inventory helps avoid incurring added transportation and logistics costs when unexpected delays and trade barriers arise.

  • Optimize the product flow path. Ensuring that products flow efficiently to the point of consumption is another important factor of a successful global supply chain strategy. Companies must carefully determine optimal distribution methods and transportation modes based on product velocity, demand patterns, and handling and transportation costs.

One size doesn’t fit all, however. A company’s decision to optimize the flow path for each product may be different, or shift over time due to seasonality or economic factors. It is also crucial for companies to re-evaluate their supply chains and design new go-to-market strategies accordingly, if challenged with expanded product offerings or disparate supply chain processes following strategic acquisitions.