Thefts of and from lorries are only one part of securing a supply chain that may stretch across the globe.
Say your company is sourcing clothing from Sri Lanka. Issues to bear in mind are terrorism and a possible port strike. If the island does suffer from some terrorist outrage, ships tend to sail by, because of insurance risk premiums. We all know of 9-11, and Tamil Tigers made the headlines when an attack on an airport affected British holiday-makers, but not so publicised was a terrorist attack on the Colombo docks. This is the field of Nick Allan, Associate Director Political Risk, at consultants Control Risks Group. Trouble can arise if a company looks at how efficient its supply chain is – seeking to drive costs down, and computerising – rather than how effective the chain is. You only have to look at the consumer products on the High Street or in your home to see how global supply chains can be. Risks come when a company seeks to centralise its distribution. Say a firm centralises its European distribution in Turkey. OK, the country is politically fairly stable, but what if the area is hit by an earthquake, blocking the normally good road access – do you then lose all your distribution across Europe’ Again, there may be benefits to going for preferred supply partners, another trend, but is a company concentrating its risk’ Nick Allan sums up: ‘What we are trying to do is maintain supply and availability of product.’ CRG clients, such as retailers, have to beware of any domino effect – a disruption in an early part of the supply chain can have an impact all the way down the line, and companies do not like to keep large stocks in case of disruption, because of cost.
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Talking together
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One of the ways CRG tries to build up the resilience of clients’ supply chains is to get client and suppliers together, to share an appreciation of the risk. Suppliers do tend to be reluctant to admit there is a risk (if you’re on the phone in the UK to a supplier in Indonesia and there’s gunfire from a riot in the background, that supplier would rather not lose his order … ‘no. it’s only a car backfiring’.) The challenge, Nick says, is to get collective action from client and suppliers. The client – a retailer, say – may have different priorities from some of the suppliers. A supplier may be in a position to ship something to you that you don’t really want at that time of year – it’s not in season in Europe. You the retailer would rather that supplier give up his shipping space to another supplier, maybe a rival, who has something you do want to sell when it arrives. Don’t forget time as a factor – two weeks may not be here or there, or it may be critical.
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Two Ms
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Nick gives the case of Madagascar, with an important textile industry. Mapping the risks to the bringing in of raw materials and the transport of them around the island includes: power for, and maintenance of, machinery; and transit from port (if truck drivers go on strike, goods will not get to port). Risks range from the mundane (thefts) to the political (Madagascar has had two presidents each claiming legitimacy, and in the confusion the armed forces have been setting up road-blocks). Crossing Africa for a second example, Morocco is politically quite stable: ‘What is interesting about Morocco is that almost all the goods Morocco produces for the European market go via Tangiers and go by boat to Algeciras in Spain.’ Risks in Morocco, then, are of a port strike interrupting supply, and illegal immigrants hitching a lift with your goods, Morocco being a gateway to the West for migrants from all of Africa. Not only might your goods be impounded, there’s a risk to your lorry drivers if they uncover ‘illegals’ when checking their loads. Not least, if illegals choose to use the back of one of your lorries as a free three-day ride to the UK, they are hardly going to leave your goods as they found them. So what do you do’ Lobby governments to do something, improve your security, and maybe factor in the risk – take it on board, if you cannot eliminate it.
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Managing risks
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The role of the consultants is to manage risks – using information from CRG’s own analysts, for example – so that clients can be proactive. If CRG sees civil unrest coming in a country, for example, clients can talk to their suppliers, and freight forwarders, before a disruption to the supply chain. Many other companies will be in the same boat (so to speak) and there will be a shortage of air freight space and containers, as companies seek an alternative to ships. A port strike in one place can mean air freight prices go up, and ships end up being in the wrong port. The company that is aware of risks can gain competitive advantage by spotting trouble before it has an impact.
