Sources of risks faced by the global supply chain
One of the greatest challenges in the global supply chain is the increasing growth rate of inventory. As long as the challenge of satisfying the customers’ needs in terms of product availability exists, the level of inventory growth needs to be reduced. However, there is a global disagreement concerning the right level of inventory. Global supply risks can be classified into 3 categories, supply, demand, and operational risks. Supply disruption occurs when the supply chain is unable to meet the current demand for a particular product in both quantity and quality supplied (Culp, 2012). This may be either finished products or parts of the product. A demand risk on the other hand occurs when the demand for a product changes in unpredictable fluctuations (Culp, 2012). This is known as demand disruption and it affects the global chain of supply.
The supply of goods and services is highly dependent on the demand for the product. Lastly, the operational risk is a major hindrance in the global chain of supply. Operational risks include transportation and the supply of goods and services is solely dependent on it. For a product to be available and for it to satisfy the consumers’ needs, availability is crucial. Without proper and efficient means of availing the products to the end-users, the supply chain can be greatly affected. The global supply chain can also be affected by other factors such as government regulations, political stability, natural calamities, and global economic performance. All these risks are possible and they threaten the performance and smooth running of the global supply system in various dissimilar ways.
How to mitigate these risks
Undoubtedly, the global supply chain faces numerous challenges and companies are finding it difficult to deal with the unpredictable nature of these risks. The recent earthquake disaster in Japan caused a production impasse in the automobile industry (Culp, 2012). The electronic gadgets manufacturers were also affected and the losses incurred amounted to millions of dollars. Understanding that the fragility of the global supply chain is mostly due to the emerging risks, companies are finding it difficult to prepare for such eventualities. One of the most efficient strategies for dealing with unpredictable risks is subcontracting. This allows companies to delegate some of their functions to other external players hence reducing their vulnerability. This is a way of spreading the risks although some may argue that it is not cost-effective. However, with the risks involved, companies have to reconsider their pursuit of reducing the cost of production and lay emphasis on sustainable supply chains (Culp, 2012). Another way to minimize the risks of supply chains is by avoiding geographical and operational concentration.
Conclusion
Concentrating production in a single geographical assembly might be drastic in the event of a disaster. Having different geographical locations reduces the risks on a company’s supply chain significantly. Therefore, companies should distribute their production resources to different geographical areas to avoid full closure in times of difficulty. Companies may be worried about the cost of taking these measures but compared to the drawbacks anticipated in the event of a natural calamity or political instability, the cost is worth incurring. In addition, companies should consider operating on minimal in-process inventories (Culp, 2012). According to Culp, maintaining backup inventory manufacturing facilities exposes companies to unpredictable risks (Culp, 2012).
Reference
Culp, S. (2012). Supply Chain Risk a Hidden Liability for Many Companies. Web.