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The Top Three Supply Chain Risks and How to Avoid Them

Global supply networks promise to revolutionize almost every aspect of modern business. However global can't deliver on their promises and may create severe financial and legal consequences when unwary companies ignore today's biggest supply chain risks, says Ann Grackin, managing director for Supply Chain Risk Intelligence Services at Marsh Inc.

According to Grackin, the top three supply chain risks are

• Rising energy and commodity prices. Spikes in fuel costs for transportation aren't today's only threats. Soaring prices for the commodities and petrochemicals that go into finished goods are also deflating profits, Grackin says.
• Product–integrity breakdowns. This multifaceted problem ranges from the learning curve new offshore partners require to match the original manufacturer's quality levels, to the counterfeiting and piracy incidents that cause reputable companies to inadvertently expose themselves to product safety violations and tarnished brand names.
• Performance myopia. A lack of full supply–chain visibility makes companies vulnerable to quality and service–level problems from second– and third–tier suppliers.

Alleviate Risks

Fortunately, the right strategies and technologies can mitigate these risks. Step one: "Get involved," Grackin says. "Go out and really understand what's happening in your supply chain by focusing even more on process management, compliance management, audits, and by educating your suppliers about the consequences of quality problems."

Next, look to the latest information–management technologies to achieve supply–chain visibility through end–to–end performance monitoring of trading partners. "If a supplier isn't performing, then tell it what the game is, and if that doesn't work, then maybe you need to select a new supplier," Grackin says.

Similarly, radio–frequency identification (RFID) tags and geographic information system (GIS) sensors help companies trace how well shipments are adhering to schedules and being secured against tampering and other threats as they move through supply networks.

Finally, Grackin advises companies to adopt what she calls a risk–transfer philosophy. Use insurance policies to protect against the financial impact of business disruptions. Or look for financial partners to help fund inventories "so you're not taking on the financial risk until you've received the goods, inspected them, and know that they're up to snuff."

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