Risk and Uncertainty in the Supply Chain
Is outsourcing your operations a good idea? Labor and production costs tend to
be far lower in countries like China or India. Often so much so that the
savings more than compensate for the increased logistics costs involved in
sourcing from those countries. But what happens if these distant supply lines
get interrupted? Often the benefits of outsourcing outshine the potential
risks. But one does not have to look as far as China or India to find many
potential pitfalls. Supply chains are under threat much closer to home as well.
Interruptions can happen any moment, for internal reasons (even without
outsourcing a single process) or for local operations (when sourcing components
regionally). How does flooding in Galicia or Catalonia affect our ability to
serve our clients? How do we keep our production line humming when key
components are stuck in traffic half way to our factory due to an unexpected
truck strike in France? How do we adjust our supply chain when demand has
changed overnight or even in the time it takes to play a game of football?
A growing number of factors can make the probability of interruptions happening
more likely than any supply chain director would like: terrorist attacks,
climatic change, port congestion, supplier failures, unethical behavior or
simply sudden changes in the market realities. After all, the more you source
and supply internationally, the more complex your operations become, and the
more you depend on external parties for functions over which you previously had
direct control. Interestingly, few managers are truly prepared to prevent
interruption, or at least be able to react in such a away that the impact on
the supply chain is minimal.