August 2018 | Commentary | Risks and Rewards: Risk Management Strategies

5 Tactics for Managing the Unexpected

Tags: Risk Management, Logistics, Supply Chain

Doug Collins is Vice President, Regional Director of Risk Services, Atradius, 800-822-3223

No supply chain is immune from risk, and the farther a company's supply chain traverses the globe, the more opportunity for things to go awry.

Companies can take proactive steps to ensure they won't be blindsided by sudden changes to their supply chain. Taking out a credit insurance policy from a credit insurer is just one way to safeguard against political volatility, currency fluctuations, natural disasters, and other supply chain risk factors.

Additional steps include:

  1. Monitor the credit cycle. Historically, the U.S. credit cycle correlates with uncertainty. During periods of low interest rates and a benign credit environment, global uncertainty also tends to be low. When U.S. interest rates begin to rise—which is the case now—many countries begin to feel stresses on their economies.

    For instance, two years ago, when U.S. interest rates were close to zero, everyone invested in emerging markets because of their higher interest yields.

    When interest rates begin to creep up again, that money flows back to the United States and other developed markets because the economies there are safer bets. This, in turn, creates higher political risk for the emerging markets.

  2. Understand government policy changes. Companies should keep tabs on government policy changes but also have the sagacity to hold off making any big decisions until something actually happens, as the actual outcome of policy changes usually doesn't match the rhetoric surrounding the issue.

    But that doesn't mean companies shouldn't have contingency plans in place. Especially in times of increased global uncertainty, companies need to get below the headlines to understand the potential impact and think through how to pivot quickly if necessary.

  3. Keep tabs on each supplier's financial condition. Don't take for granted that your trading partners are financially strong—rising interest rates coincide with an increase in bankruptcy activity. Lately, sectors such as retail and wholesale have been hit particularly hard because of Amazon's dominance in supplying and sourcing goods.

    To avoid any supply chain hiccups, companies should monitor their suppliers' financial statements and banking information every quarter.

  4. Take advantage of blockchain technology. Having multiple accounts of trading agreements leaves companies open to mistakes and fraud. Blockchain technology, a shared ledger showing transaction history, can reduce this risk.

    Blockchain technology provides a high level of security and an unalterable audit trail so companies can see exactly what was agreed to. The technology is beginning to replace cryptocurrency as a best practice, and is replacing letters of credit in some sectors, including logistics. Using blockchain technology is also more efficient than each company having its own record because intermediaries aren't needed.

  5. Build flexibility into the business plan. Trade circumstances can evolve quickly, so it's essential for companies to build flexibility into their supply chains and have plans to manage unexpected events.

    Take the recent truckers' strike in Brazil, which shut the whole country down for more than one week. Perishables rotted, so any company waiting on those deliveries was forced to come up with an alternate plan.

    There's no predicting what the future holds, but with some forethought, companies can weather any changing condition.






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