1. Managing risk in global supply chains involves implementing strategies to manage everyday and exceptional risks across the supply chain through continuous risk assessment to reduce vulnerability and ensure continuity. 2. As companies outsource production globally to reduce costs, they introduce new risks related to culture, distance, time zones, and differing priorities between entities in the supply chain. 3. Managing a global supply chain requires understanding the cultural and operational dynamics in each location, as even neighboring countries can have important differences in risk tolerance, traditions, saving habits, and focus on quick versus sustained results. Failing to account for these differences can lead to disappointments and increased costs.

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Managing Risk in Global Supply Chains
By
Zubin Poonawalla
Supply chain risk management is defined as“the implementation of
strategiesto manage both every day & exceptional risks along the
supply chain based on continuousrisk assessment with the
objectiveof reducing vulnerability& ensuring continuity.” A
supply chain is a network of enterprises, spread across the globe,
collaborating to producegoods& services for customers. It assumes
that there is a perfect alignment between these enterprises Each
entity in the chain has to react to developmentsin coordination with
the others. Seems straightforward on the face of it. But if wefactor in
the multiplerelationships each enterprisehas, & the need to
calibrate responsesaccordingly, it becomes tricky. The same vendor
may be producingcomponentsfor Honda, GM & Fiat located in
differentcountries. The vendor is a part of three global supply chains.
And has to align with three differentwork styles, risk appetites, &
waysto respond. This can quickly become a nightmare.
Global Outsourcing
The immensepressureto reducecosts has pushed firmsto seek
suppliersin countrieswhere they willbe able to extract cost
reductions. The argumentmay start with labor arbitrage or
sometimes raw material availability. This is what drovefirmsto
invest in China. Butquickly a few challenges became obvious. The
cost of labor in China is rising. In FY03, the labor cost in urban
manufacturingsector was RBM 127000r $ 1534. In FY10 itwasRBM
31000 or $ 4579 & in FY14 itwas RBM 56339or $ 9000. Labor
arbitrage can quickly disappear. Apartfrom this, travel costs,
logistics costs, translation services, licenses, fees, legal costs, can all
add up. And allof these introducenew risks.
Risks in a Global Supply Chain
As long as the supplier, the manufacturer & the customer are in the
same or contiguousgeographic zone, the manufacturer can arrange
the movementof goods & servicesin a coordinated manner to ensure
mandated production levels. In case of any disruption, the

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manufacturer retainsthe ability to quickly intervene& avert possible
delays. The manufacturer, thesupplier & the customer are aware of
the biz ecosystem & managersare ingrained to think about it. The
organization is fully prepared to meet any challenge. Eg, an Indian
wire manufacturer hasfactored in the delaysin transportfrom the
factory to all major cities in the country, & comfortably ensures
productavailability, He is aware of the delaysin road transport. If the
same manufacturer wereto source the wiresfrom say China, the
managerswould notbe as comfortable with the schedules.
As supplier &/or customersmoveout of the country, the manager
has to factor in quiet a few new factors. These risks are as below:
Culture Gap
The first new risk that arises from a globalized supply chain is the
cultureGap. Eg, the culturaldifferencesbetween Indian & American
managersare quiet stark. The American manager is more bothered
about the quality & timeliness of the job, while the Indian manager is
morehierarchy oriented & will not state an opinion unlessasked for.
A simpleexample from an un-related field – IT is the training on
diningetiquettes given to fresh IT engineers beforere-locating them
overseas. A consensusoriented Indian manager may not be effective
in a competitive western set up. Culturalsensitization is very
important.
Distance & Time
Distance & time can be a major problem when it comes to resolving
issues. The US & Indian areroughly 13500 KM apart. In addition
there is a 10 to 12 hour differencein time zones. When USA awakes,
we in India will be windingup. Managersacrossthese time zones
need to adjust their workinghours to accommodate these
differences. If our customers are from the US, the senior management
needsto be available duringtheir day time to resolve issues. Multiple
time zonesobstruct efficient trouble-shooting & follow up from
remote locations.
Alignment betweenEntities
As supply chainsgo global, weneed to realize that we may not be the
only or most importantcustomer to the vendor. The vendor may

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have other commitments& priorities. Managing a supply chain
where the differententities have differentpriorities is a challenge.
Eg, rest & employeesafety are a major issue for an American fleet
operator. The wellbeing of the driver is a priority for the fleet owner.
Contrastit to the Indian Lala fleet owner, wherethe driver has to live
in his truck till the goods are delivered. Unlessthe entities work out
the priorities upfront, therewill be many disappointments.
As these risks add up, they can pose a significant cost to the
enterprise. Managersneed to spend time& effort to understand the
cultural& operational dynamicsin each location. Belgium &
Denmark areboth in Europe, butBelgium is very risk averse, while
Denmark is open to risk. Similarly, in Belgium peopleshow an ability
to adapt traditionseasily to changed conditions, a strong propensity
to save & invest, thriftiness, & perseverancein achieving results.
Daneson the other hand exhibit great respect for traditions, a
relatively small propensity to save for the future, & a focuson
achieving quick results. Managersneed to understand these
differences.