Risk is inherent in any kind of business enterprise, but supply chain risks pose a particular danger for companies worldwide. Businesses are teetering between good reputation and the downfall caused by a single weakness or event. In the digital era, nothing can be hidden from public scrutiny, and no company is safe form libels and liabilities.
Supply Chain Risks Management: The Top Managerial Skill of the 21st Century
How much of this type of risks can be mitigated and how much is beyond the control of the companies? Certainly, one cannot plan ahead for the bankruptcy of a major shipping company like Hanjin and there is no way of knowing how legislative changes can impact supply costs, such as outsourced manufacturing labor.
However, the survivors of the economic crisis of 2007-2008 have a lesson to teach to top managers all over the world: as long as your supply chain risks are known and forecast to the highest extent possible, you can adapt and overcome setbacks. What happens if South East Asia stops being the most attractive market for manufacturing and distribution? The automotive industry has already found the answer, focusing its interest on North Africa.
Mitigating supply chain risks becomes, truly, the top skill which a CEO and a logistics manager should have in order to add true value to their organization. At Logistic Packaging, we know that this is one of the key skills we need to stay always ahead of changes, of unforeseen situations and changing customer demands. And today we will share with you some of the top strategic decisions which significantly decrease supply chain risks.
1. Know Who Is The Next in Line
What happens to your products once they leave the production line? Do you have a reliable packaging provider and shipping company? Do you have contacts for overseas receipt of goods once they pass through customs? What about warehouses and check-points en route to the final destination?
If your policy is to keep prospecting the market for the cheapest price, you may reduce initial packaging and shipping costs. But in the long run you will lack predictability and the assurance of working with a trusted business partner whose good reputation reflects back on you.
2. Key Step to Mitigate Supply Chain Risks: Insure Your Merchandize Adequately
What happens if your shipment is lost at sea or in a road collision? What if delays in the customs cause your perishable goods to arrive spoiled at the destination? And what if dishonest warehouse employees pilfer products from your containers and crates? For all these negative occurrences there is one answer: insurance. The only type of expensive insurance which you cannot afford is the one which does not offer your organization adequate coverage for all these issues.
3. However, Do Not Take Liability Without Adding Up the Numbers
Of course, every company needs to shoulder responsibility and be liable to its customers and suppliers. But this should not come at the cost of your bottom line. When sheer profitability is at stake, it is time to rethink how much liability you can accept.
It is true that companies try to be as amenable as possible to traditional markets and business partners. Competition is breathing down your neck and you are prepared to throw in an extra bonus just to keep your customer happy. When you let this fear dictate over your business judgment, supply chain risk is not just a maybe, it is a certainty.
4. Have Airtight Contract Clauses
Could your own contracts with suppliers and customers be the cause of your downfall? They are, in many cases. When your clauses are badly drafted and difficult to understand, they can be open to interpretations. The most sensitive types of clauses are those relating to indemnities, liability, penalties and termination. Always have a professional lawyer draft your contracts and review them for each particular case.
5. When Litigation Is the Only Way, Have It In Your Jurisdiction
International trade engenders supply chain risks and the materialization of those risks into arbitrage or court litigation. Of course, your best course is to avoid it, but amicable settlements do not work all the times. When you are forced to solve litigations in court, make sure they are in your local jurisdiction. Fighting a legal battle abroad, in a country whose language and legal system you do not know can prove extremely expensive and may hurt your chances of success.
Last, but not least, when discussing supply chain risks in board meetings, remember to include every person who is directly involved in the process and have them share their views as the most likely sources of up to date and factual information.