Global Vulnerabilities in Economic Systems
The global economic systems are extremely vulnerable to various factors. Complexity and uncertainty impact their evolution, meaning there is a need for risk analysis procedures (Heckmann, Comes, & Nickel, 2015). These should consider the geopolitical risks such as using weapons of mass destruction, terrorist attacks, or interstate conflicts (Desjardins, 2015). The likelihood of natural disasters is also high, which might impact global supply chains (Routley, 2019).
Understanding Supply Chain Risk
For this reason, the correct understanding of supply chain risk acquires the top priority as it helps to introduce practical strategies to manage it. One of the first ones views it as the possible variation in the distribution of supply chain outcomes, their probability, and subjective values (Heckmann et al., 2015). The supply chain risks might include financial and legal ones, human behavior, environmental, and sociopolitical ones (Heckmann et al., 2015). It means that companies might select various risk mitigation strategies to address these factors.
Risk Mitigation Strategies
Thus, the choice of approaches to addressing various threats depends on the current situation and might lead to the emergence of other issues. For instance, avoidance strategies imply avoiding risks by their consideration and using preliminary actions to ensure the company evolves (Manners-Bell, 2020). However, it might lead to supply chain risks such as reduced supplies or lack of planning.
Implementing Effective Risk Management
In this regard, modern companies should have a set of risk mitigation strategies that might be used in various situations to ensure the cost structures remain unchanged and supply chain function (Manners-Bell, 2020). For instance, the change in legal aspects might impact the firm’s financing and budget planning. Using the reduction strategy, it can foresee this outcome and make it part of the development strategy. Under these conditions, risk mitigation strategies are critical for managing global supply chains as they help to reduce uncertainty levels and avoid the negative impact of environmental or human factors.
References
Desjardins, J. (2015). Geopolitical risks are climbing: Interstate conflict is the highest risk in 2015. Web.
Heckmann, I., Comes, T., & Nickel, S. (2015). A critical review on supply chain risk – Definition, measure, and modelling. Omega, 52, 119-132.
Manners-Bell, J. (2020). Supply chain risk management: How to design and manage resilient supply chains (3rd ed.). New York, NY: Kogan Page.
Routley, N. (2019). The top global risk in 2019. Web.