BM1913

GLOBAL SUPPLY CHAIN OPERATIONS AND RISK MANAGEMENT

Factors Influencing Globalization
The key factors that influence the growth of globalization are as follows (Myerson, 2015):
• Improvements in transportation. These involve larger container ships that lower the cost of
transporting goods between countries. The cost per item of products is reduced when operating
on a larger scale. Transportation improvements also mean that both goods and people can travel
more quickly.
• Freedom of trade. This involves free trade between countries, as made possible by the World
Trade Organization (WTO). Most trade barriers are now removed, and countries may easily
transport goods between territories.
• Improvements in communication. These involve efficient lines of communication connecting
people in different countries, as powered by the Internet and mobile technology.
• Labor availability and skills. These involve lower labor costs and, in some cases, high skill levels
in less-developed nations of Asia. Labor-intensive industries such as clothing can take advantage
of cheaper labor costs and reduced legal restrictions in less-developed countries.
• Transnational corporations. These involve setting up or buying operations in other countries.
When a foreign company invests in a country, by building a factory or a shop, this is sometimes
called inward investment. Companies that operate in several countries are often referred to as
multinational corporations (MNCs) or transnational corporations (TNCs). For example, the U.S.
fast-food chain McDonald’s is a large MNC, having nearly 30,000 restaurants in 119 countries.
Global Supply Chain Strategy Development
The actual step-by-step approach for developing global supply chains are as follows (Operational
Excellence Consulting, n.d.):
1. Identify customer requirements. This involves the development of an integrated supply chain
strategy through an assessment of the present and future supply chain requirements from the
customers’ perspective. In some cases, an organization may be required to segment its customers
and develop different logistics approaches for each customer segment. Assessments should
include customer requirements regarding delivery frequency, inventory levels, order fulfillment
lead times, return and replacement policies, packaging requirements and damage in
transportation, product labeling, warehouse network changes, and special delivery services.
2. Determine needs and opportunities. This involves defining the major supply chain trends and
determining how it will improve the integrated supply chain strategy. Some of the current trends
that organizations may adopt are end-to-end (E2E) collaboration, Lean Six Sigma (risks and
opportunities of globalization), among others. End-to-end (E2E) is a management approach that
guides a project manager from conceptualization to the delivery of a plan/project. Lean Six Sigma,
on the other hand, is a systematic approach that aims to eliminate activities that do not add value
to a process. It stresses removing wasteful steps in a process and taking only some value-adding
steps. This ensures high quality and customer satisfaction.
3. Competitive analysis. This involves recognizing and predicting the possible actions of the rival
firms. While many organizations prefer to focus on comparing basic performance data, it is far
more useful to focus on understanding the competitor’s processes, technology, and underlying
network capabilities. Sources of information for the competitive analysis include internet search,
annual reports, interviews with executives, conference presentations, interviews with previous
employees of rival firms, mutual suppliers, mutual customers, online databases, and firms of
external consultants specializing in competitive benchmarking and analysis.

12 Handout 1 *Property of STI

 student.feedback@sti.edu Page 1 of 5
 BM1913

4. Supply chain technology. This involves utilizing the available technology to enable and sustain
new processes and capabilities necessary to execute the supply chain strategy. Reviewing the
existing supply chain technologies and technology trends may trigger ideas about how to connect
new technology capabilities with identified customer requirements. However, managers must
keep in mind that the customer requirements, not the technology, should drive the development
of new supply chain capabilities. How effectively some of these technologies improve or even
transform an organization’s supply chain greatly depends on how successful the organization is in
hiring and retaining people who can understand and use them. Training and talent planning,
therefore, need to be part of any technology strategy.
5. Supply chain risks. These involve developing a robust process for identifying, prioritizing,
managing, and mitigating hazards. A systematic risk assessment becomes even more important
as an organization decides to compete globally and/or expand its supply chain to other countries
and regions. Unfortunately, without a crisis to motivate actions, risk planning often falls to the
bottom of the priority list.
6. New supply chain capabilities. This involves forming a cross-functional strategy team, including
resources from sales, information technology (IT), and finance. In addition, the company must
organize an off-site meeting to review collected inputs related to customer requirements, internal
supply chain assessment, supply chain trends, competitive analysis, supply chain technologies,
and supply chain risks. During the review process, a running list of all potential new supply chain
capabilities that could be developed needs to be kept. To rank and prioritize the potential supply
chain capabilities, the strategy team needs to determine the estimated impact of each new
capability on the organization’s supply chain performance indicators (service levels, costs,
inventory, and working capital) and consider the human and financial resources necessary to
implement each supply chain capability.
7. Supply chain organization. This involves the implementation of a new supply chain strategy. This
may include additional people, fewer people, separation of an existing team, or merging two (2)
teams that are currently in different parts of the organization. Therefore, a review of the
organizational design needs to be part of the supply chain strategy implementation process.
Developing new supply chain capabilities and managing them over time will almost always require
new skills and competencies. The strategy team needs to establish a complete list of skills and
competencies needed for each position and then evaluate the existing people based on whether
they already have these skills or if they can acquire them. Specific competence development plans
need to be established for each individual to ensure that new capabilities can be implemented
and managed effectively. Requirements for new hires and associated transition plans need to be
developed as well.
8. Business case. This involves writing a solid paper that details the implementation program of new
supply chain strategies. In addition, companies must periodically update the senior leadership
team and key stakeholders during the strategy development process, emphasizing the significant
impact and benefits the supply chain can have in terms of the financial performance of an
organization and shareholder value. This activity needs to be part of a more comprehensive
communication and change management plan that supports the strategy development and
deployment process.

Potential Risk Identification and Impact

Global supply chain managers need to be aware of the relevant risk factors that may disrupt or negatively
affect their business operations. Before planning for risks in the supply chain, companies must identify
potential risks and their impact. To accomplish this, many companies use a vulnerability map to visualize
unforeseen and unwanted events (as shown in Figure 1). A vulnerability map gives the precise location of

12 Handout 1 *Property of STI

 student.feedback@sti.edu Page 2 of 5
 BM1913

sites where people, the natural environment, or property are at risk due to a potentially catastrophic
event that could result in death, injury, pollution, or other destruction (United Nations Environment
Programme, n.d.).

Figure 1. Vulnerability map

Source: Supply Chain and Logistics Management Made Easy: Methods and Applications for Planning,
Operations, Integration, Control and Improvement, and Network Design, 2015.

This type of analysis has two (2) dimensions: disruption probability and consequences. Risks with a high
disruption probability and severe consequences should be given a great deal of attention. Before
determining a risk management strategy for an organization, it is important to consider the possible
sources of risk.
There are five (5) sources of risk in a supply chain, some of which are internal, others external, to an
organization:
Internal
• Process risks. These are the value-adding and managerial activities undertaken by the firm to
avoid disruptions in processes. These processes are usually dependent on internally owned or
managed assets and on the existing infrastructure, so the reliability of supporting transportation,
communication, and infrastructure should be carefully considered.
• Control risks. These are the rules, systems, and procedures that determine how organizations
exert control over the processes and, therefore, the risks arising from the use or misuse of these
rules. For the supply chain, they include order quantities, batch sizes, safety stock policies, and so
on, and any policies and procedures that cover asset and transportation management.

External
• Demand risks. These are external to the organization but are internal to the networks through
which materials, products, and information flow between companies. The organization should
consider potential disruptions to the flow of products and information from within and between

12 Handout 1 *Property of STI

 student.feedback@sti.edu Page 3 of 5
 BM1913

all parties in the extended supply chain network and at least understand and monitor the
potential risks that may affect other supply chain partners.
• Supply risks. These are the upstream equivalent of demand risk and relate to potential or actual
disturbances to the flow of product or information from within the network.
• Environmental risks. These are disruptions that are external to the network of organizations
through which the products flow. This type of event can impact an organization directly, on those
upstream or downstream, or on the marketplace itself. Environmental-related events may affect
a particular product (for example, contamination) or place through which the supply chain passes
(for example, accident, direct action, extreme weather, or natural disasters). They may also be
the result of sociopolitical, economic, or technological events far removed from your firm’s own
supply chains, with the effects often reaching other industry networks.

Risk Mitigation
These are the common problems in the supply chain with their corresponding tactics for risk mitigation:
• Supplier failure to deliver. Companies may partner with multiple traders and engage in contracts
with conditional penalties.
EXAMPLE: McDonald’s planned its supply chain many years before opening stores in Russia. All
plants are monitored closely to ensure strong links with suppliers.
• Supplier quality failure. Companies must ensure adequate supplier selection, training,
certification, and monitoring processes.
EXAMPLE: San Miguel Corporation uses third-party audits and other controls on supplier
processes and logistics for the reduction of risks.
• Logistics delays or damage. Companies must have multiple or backup transportation modes and
warehouses. In addition, they must have secure packaging and execute contracts with penalties
for nonconformance.
EXAMPLE: S&R Membership Shopping consistently plans for alternative origins and delivery
routes, bypassing problem areas when delivering from its distribution centers to its stores using
its private vehicle.
• Distribution. Companies must have a detailed selection and management process when using
public warehouses.
EXAMPLE: Nissan trains its dealers on improving customer service, logistics, and repair facilities.
• Information loss or distortion. Companies must back up databases within secure information
systems. In addition, they must use established industry standards and train of supply chain
partners on the understanding and use of information.
EXAMPLE: Accenture, a company that provides consultancy and professional services to its clients,
is using blockchain technology for efficient and secure transfer of engineering, scheduling, and
logistics data to their intermediaries.
• Political. Companies may purchase political risk insurance. Political risk insurance provides
financial protection to investors, financial institutions, and businesses that face the possibility of
losing money because of political events (Kagan, 2018). This is also the situation where one may
decide to go the route of franchising and licensing with the business.
EXAMPLE: Starbucks engages in licensing to different countries in order to reduce political risk.
• Economic. Companies may enter a financial contract to protect their finances against unexpected,
expected, or anticipated changes in currency exchange rates. This can be used to address the
exchange rate risk.
EXAMPLE: Honda moved some of its manufacturing processes out of Japan since the exchange
rate for yen has made Japanese-made automobiles more expensive.

12 Handout 1 *Property of STI

 student.feedback@sti.edu Page 4 of 5
 BM1913

• Natural catastrophes. Companies may plan for natural disasters by acquiring various forms of
insurance, such as flood insurance. In addition, companies may also consider alternate sourcing.
EXAMPLE: After the 2011 Japan earthquake and tsunami, Toyota has established at least two (2)
suppliers, in different geographic regions, for each component of their cars.
• Theft, vandalism, and terrorism. Companies may enforce patent protection and use security
measures such as radio frequency identification (RFID).
EXAMPLE: The Philippines, through the Philippine Nuclear Research Institute (PNRI), has
established radiation monitors at major Philippine ports to scan imported containers for radiation
(Philippine Nuclear Research Institute, 2016).

References:
Kagan, J. (2018). Political risk insurance. Retrieved on December 6, 2019, from
https://www.investopedia.com/terms/p/political-risk-insurance.asp
Myerson, P. (2015). Supply chain and logistics management made easy: Methods and applications for
planning, operations, integration, control and improvement, and network design. United States:
Pearson Education, Inc.
Operational Excellence Consulting. (n.d.). How to develop a supply chain strategy. Retrieved on December
6, 2019, from https://www.operational-excellence-consulting.com/opex-articles/how-to-
develop-a-supply-chain-strategy
Philippine Nuclear Research Institute. (2016). PNRI inaugurates the radiation portal monitor (rpm) training
facility. December 10, 2019, from https://www.pnri.dost.gov.ph/index.php/2-
uncategorised/373-pnri-inaugurates-the-radiation-portal-monitor-rpm-training-facility
United Nations Environment Programme. (n.d.). Handbook for vulnerability mapping. Retrieved on
December 6, 2019, from http://www.unep.fr/shared/publications/pdf/ANNEXES/
3.2.4%20Risk%20assessment%20and%20vulnerability%20maps/Handbook%20for%20Vulnerab
ility%20Mapping.pdf

12 Handout 1 *Property of STI

 student.feedback@sti.edu Page 5 of 5