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Hurricanes, regional conflicts, data breaches: in recent times, risk comes in many forms. It’s a far cry from the days when supplier failures, component shortages and material price volatility were the main issues that kept procurement chiefs up at night.
Regional conflicts are a particular concern to supply chains today given recent actions by North Korea. In September 2017, the nation made its sixth nuclear test, the first of a thermonuclear variety and just the latest data point in a timeline of incidents that have significantly escalated tensions with both South Korea and the US. At the start of 2018, supreme leader of North Korea Kim Jong-Un pledged to lower military tensions on the Korean Peninsula, which it is hoped will ease tensions in the region. But uncertainty remains, threatening to impact supply chains around the globe.
South Korea is a major producer of semiconductors, liquid crystal displays as well as cars, and ships, meaning that a regional conflict could disrupt the global electronics supply chain. The consequences, such as goods getting held up at customs checkpoints or suppliers having to close their factories, could put entire sources of supply into question.
Although geopolitical risks can’t be avoided completely, their impacts can be limited by having a well-defined, risk management approach embedded in the sourcing process. Procurement teams can take comfort in the fact mitigating these types of risks isn’t too different to the best practices already in place to protect supply chains against traditional risks. It’s important to recognise that laying a strong foundation of daily risk management practices, and building on this framework with specific, targeted strategies to fight geopolitical risks, will go a long way to reducing the effects of economic, political and regional instability.
Today’s procurement teams must stay up-to-date with international news in order to understand shifting geopolitical dynamics and scope out parts of the supply chain most vulnerable to risk. This will help teams decipher when it’s smart to sit back and watch carefully, and when to make changes to supply chain strategies or turn to another supplier.
Securing alternative sources of supply ahead of time may feel like a no-brainer, but it’s worth reiterating, especially when facing a risk that stems from volatility in certain regions. Having backup supply options ready in low-risk areas, with suppliers that meet key cost and quality specifications, will enable procurement to quickly shift to another supply source.
It is, though, hard to be prepared for everything. Teams should tap into data sources that offer accurate analysis on how risks are developing, as this will help future-proof supply chains against the most threatening situations. Focus on the most likely risks and plan accordingly, rather than getting bogged down considering every possible scenario.
When procurement prepares for risk and the supply chain avoids disruption, the business can deliver on customer expectations and get the right products to the end user at the promised time. Customers won’t have to go to a competitor because the procurement team couldn’t fulfil the order.
Instability doesn’t always lead to negative business impact, but it certainly pays to be prepared.
Jim Wetekamp is chief executive officer of BravoSolution
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.