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How to Manage Risk in a Global Supply Chain
Managing supply chain risk can be extremely daunting due to the many moving parts in a supply chain. This article highlights this risk and suggests what firms operating in the global environment can do to manage it. It explains how organizations consider global sourcing for reasons of organization, improvement, finances, and revenues. A major under-appreciated factor in dealing with offshore suppliers is the element of risk, with one key risk factor being the cultural gap between two firms. The first levels of risks are familiar and include preconceived circumstances and are often based on past experience. The next levels, however, are typically less likely to be risk factors, but their consequences are more severe when they do become factors. Categories of risk include culture, distance, communication, urgency, and intellectual property. Leaders most often consider intellectual property, but neglect one or more of the other potential pitfalls. To illustrate supply chain risk, this article considers the example of a global French automotive parts firm with a problematic Greenfield operation in China. The operation’s supply chain crises resulted in the French firm spending far more than it had expected with a low-cost supplier. This article proposes fundamental changes to the French firm’s approach that would have led to cost savings: 1) source two suppliers at the outset; 2) spend the necessary time to understand the cultural and operational dynamics in China; and 3) embrace visibility as a simple and effective risk-assessment tactic.