Global Supply chain risk
Global Supply chain risk. Even though Global supply chain operations can bring more business and profitability to a firm, it is not free from limitations. The major hurdle for going international is the risk associated with its operations. The various risk involved in global supply chain are discussed below:
Fluctuating exchange rates
Fluctuating exchange rates affect the business and it can change the relative value of production and profit. Operating exposure depends on:
- Customer reactions.
- How a firm adjusts prices in the various market.
- Competitor reactions.
When competitor’s relative cost decrease more, a firm can be underpriced in the market.
The government can intervene to stabilize currencies, or even directly support endangered firms, by providing subsidies or tariffs.
Recent Trends in Global SCM (Read More)
Addressing risk in Global Supply Chain.
- A company bets on a single scenario, with often spectacular results if the scenario is realized, and dismal ones if it is not.
A company designs the supply chain in such a way, that any losses in part of the supply chain, will be offset by gains in another part.
- Enable a company to take advantage of different scenarios.
- Typically, flexible supply chains are designed with multiple suppliers, and excess manufacturing capacity in different countries.
- Factories are designed to be flexible, so that products can be moved at minimal cost, from region to region as economic conditions demand.
- several approaches.
- Is there enough variability in the system, to justify the use of flexible strategies?
- Do the benefits of spreading production, over various facilities justify the cost?
- Flexible factories and excess capacity, and suppliers can be used to shift production from region to region, to take advantage of current circumstances.
- Information can be used, to anticipate market changes and find new opportunities.
- Having multiple facilities worldwide, provides a firm with a certain amount of market leverage, that it might otherwise lack.
- The opportunity to move operations rapidly, gives firms a measure of political leverage, in overseas operations. governments are lax in enforcing contracts or international law, or present expensive tax alternatives, firms can move their operations.