According to a report by Investopedia, a supply chain is the single most important ingredient for any business’s success. Through the supply chain, goods are successfully moved down the channel to the last intended user.
The chain involves key players, activities, and data which influence it both directly and indirectly. Therefore, decision-makers should ensure the system is fully optimized and assessed for any risks affecting the anticipated outcome.
In this article, we’re going to dig deeper into supply chain systems and how to evaluate the chain for risks. Lastly, we’ll look into how to mitigate these risks so that they don’t lead to avoidable losses and disappointments. With that being said, let’s get down to business!
Benefits and Risks of Global and Local Supply Chains
Global supply chains are beneficial in the following ways. One, you’ll enjoy low prices when you outsource resources from fairly cheap countries. This, in turn, lowers your cost of production. Secondly, there’s stiff competition from potential suppliers. Thus they have to measure up if they’re to compete favorably. From this, you get better services and products.
On the flip side, the global supply chain bears the following downsides. One, you need to prepare for a longer shipping time. Production may be fast in most instances. However, shipping time varies from one country or region to another.
Two, you’re likely to experience communication hardships due to cultural and language differences in some cases. Therefore, one needs to do due diligence to determine the correct phrases and terminologies to use during the transaction.
Third, the global markets are at the risk of fluctuating foreign currencies. In the process, exchange rates affect stock value both negatively and positively. For example, if the foreign currency strengthens, it’ll mean you have to spend more to acquire the good and services.
Fourth, you technically lose control of the process in some scenarios. Being in different countries and sometimes far away continents, managing the activities and people can be a hassle. Eventually, this can impact the quality of the goods and services.
Lastly, relying on the internet poses significant threats to the supply chain. One significant risk is cyber-attacks which can bring down the entire system if not taken care of.
In summary, supply chain risks can be categorized into geographical and cybersecurity risks. However, the latter is dependent on the former. Below, we discuss how to assess your supplier’s geography and cybersecurity risks.
How to Assess Your Supplier’s Geography and Cybersecurity Risks
To determine potential supplier geographical risks, you’ll need to look out for the following;
- The historical average shipping time
- Cultural differences and language barriers
- Ongoing global geopolitical tensions that can impact foreign currencies (forex)
- Open and direct communication channels between you and the supplier
- Existing firewalls, antivirus, and malware software to protect against cyber threats
How to Mitigate Supply Chain Risks
There are tons of things you can do to mitigate both geographical and cybersecurity supply chain risks. Below are some of the main measures you can take into consideration.
- Implement high-level data protection to safeguard against cyber threats. The best way to go about this is to encourage yourself and your supplier to install firewalls in your computers.
- Hedge against currency fluctuations. This is a sure way to protect yourself from inflation which can affect import and export fees.
- Adequately train your risk assessment and management team to spot these risks on time and develop workable solutions.
Final thoughts: How often and to What Extent Should you Audit your Suppliers
Risk assessment should be an ongoing activity if you want to influence a supply chain’s outcome positively. For maximum protection from geographical and cybersecurity supply chain risks, you’ll want to carry out an in-depth risk assessment at least once every quarter. You can’t afford to get this wrong, or else your organization can lose it altogether.