Part 11- Global SC management and risk management

Question 1

Global supply chain management and risk management

Answer 1

Global SC definition:
Global network of suppliers, manufacturers, warehouses, distribution centers and retailers through which raw materials are purchased, transformed and delivered to customers

• in the late 80s companies began to increase global sources into their businesses –> expansion of supply chains across national borders to increase competitive advantage, reduce costs and add value to their customers
• global sc management is about sourcing, manufacturing, transporting and distributing products and services outside the company’s native country to do its faster, better and cheaper

Question 2

Factors influencing the growth of globalization:

Answer 2

• improvement in transportation (economies of scale)
• freedom of trade (WTO)
• improvements of communication (internet)
• labor availability and skills
• multinational corporations

Question 3

Reasons for a company to globalise:

Answer 3

1) Global market forces:
Foreign competition in local markets, growth in foreign demand, global presence as a defense tool etc

2) Technological forces:
need for technology sharing to be competitive, global location of R+D facilities, get closer to production/ expertise etc

3) Global cost factors:
Availability of skilled/unskilled labor at lower costs, tax benefits ++

4) Political and economic factors:
Trade protection tools (tariffs, quotas ++), environmental regulations, government procurement policies, customs duties, exchange rates fluctuations ++

Question 4

Global SC strategy development (10 steps)

Answer 4

1) Create a cross-functional, global sc development team
2) Determine requirements that company’s sc must meet
3) Determine commodity/service priorities for globalization consideration based on needs and opportunities
4) Identify potential markets and suppliers including sc arrangements and operations
5) Evaluate/qualify markets and suppliers (determine which are the best ones)
6) Determine selection process for suppliers (requests for quotation, negotiations etc)
7) Select suppliers and confirm current suppliers
8) Formalize agreements with suppliers
9) Implement agreements
10) Monitor, evaluate, review and revise as needed

Question 5

Key global SC challenges

Answer 5

1) SC volatility and uncertainty have permanently increased (lower customer loyalty)
2) Securing growth requires truly global customer and supplier networks
3) Market dynamics demand cost-optimized sc configurations
4) Risk management involved the entire supply chain
5) Existing sc organizations are not truly integrated and empowered

Question 6

Risk management- identification and impact

Answer 6

Supply chains first need to identify potential risk and their impact –> many companies do that using a vulnerability map or risk matrix

This matrix has two dimensions:
1) Disruption probability
2) Consequences

Problem: It relies on risk perception which may be something subjective

Question 7

Risk management- sources of risk

Answer 7

Before determining a risk management strategy –> it is important to consider the possible sources of risk.

Internal risks:
- process risks (value added and managerial / operational activities undertaken by the company)
- control risks (rules, systems and procedures that determine how the company exerts control over the processes and their use)

External risks:
- demand and supply risks are external to the company, but they are internal to the networks through which materials, products and information flow between companies within the sc
- environmental risks are disruptions that are external to the network of companies through which the production flows

Question 8

Supply chain disruptions

Answer 8

They are the actual occurrence of risks and are unplanned and unanticipated events that disrupt the normal flow of goods and materials within a SC.

• the consequences can be immense to the company and include higher costs, poor performance, lost sales, lower profits, bankruptcy and damage to the company

Question 9

The main characteristics of supply chain that may determine the drivers of company’s supply chain vulnerability (7 steps):

Answer 9

1) Complexity of sc (domestic vs global)
2) Density of the sc (numbers of nodes/average inter-node distance)
3) Sole sourcing vs multiple suppliers for the same team
4) Lean and just-in-time production strategies require precise timing
5) Centralization of warehouse/ manufacturing locations results in lengthy lead times due to distance issues
6) Dependency on major suppliers/customers
7) Dependency on IT, infrastructure, electricity etc

Question 10

Risk mitigation

Answer 10

1) Supplier failure to deliver (working with multiple suppliers and penalties)

2) Supplier quality failure (supplier selection, training, certification and monitoring)

3) Logistics delays or damage (multiple transportation modes and warehouses)

4) Distribution (detailed selection and management process when using public warehouses)

5) Information loss or distortion (backup databases with secure information systems)

6) Political (political risk insurance)

7) Economic (hedging to protect against changes in currency exchange rates)

8) Natural catastrophes (insurance)

9) Theft, vandalism and terrorism (insurance + security measures)