The longer the supply line, the greater the risk.

The longer the supply line, the greater the risk.

The integrity of the supply chain is vital to any company in operation, especially if they operate in a JIT fashion.  As companies expand globally, seek the lowest cost of production; supply chains will spread farther out into the world.  It is not feasible to have a complete supply chain located nearby, and the perils of distance, shipping time, and many other factors will play a role in the stability of the supply chain (Daniels, et al, 2009).

Global supply chains are more risky than domestic supply chains due to numerous links interconnecting a wide network of firms. These links are prone to disruptions, bankruptcies, breakdowns, macroeconomic and political changes, and disasters leading to higher risks and making risk management difficult (Manuj & Mentzer, 2008). Impairment to the supply chain can come in many forms: transit delays, weather, natural disaster, raw material shortages, government instability, terrorism, work stoppages, and quality defects among others.  The more stages in a supply chain, the more opportunities exist for something to go wrong (Daniels, et al, 2009).  The best a firm can do without vertically integrating all of its suppliers is to know and mitigate potential risk factors and be aware of them (Faisal et al, 2006).  Vertical integration reduces some risks, but even this will not prevent materials shortages, global strife, natural disaster and if geographically far, travel delays.  By sharing information with their supply chain partners, a firm can help understand the extent of the risks they may face in their supply chain (Faisal et al, 2006).

One possible solution to help reduce risk is going from a linear supply chain to an amorphous chain.  An amorphous supply chain relies upon various segments working together to sometimes bypass the MNE and ship directly to the consumer (Ritchie & Brindley, 2000). An example would be a Lenovo laptop.  A customer orders a laptop and that order is sent to a factory in China where it is made.  If it is a custom order it is shipped directly to the consumer via FedEx.  If it’s a stock order for a retailer like Staples, it is shipped to a Lenovo distributor then to the retail establishment.  With information technology and sharing a firm can also redirect inventory at a supplier to the end customer if that would prove faster (Ritchie & Brindley, 2000).

Even with an amorphous supply chain, the risk is still there.  Risk analysis will help determine how much peril your supply chain could be in (Barry, 2004).  Contrary to JIT inventory management and production, a buffer can help mitigate some of the uncontrollable risks (Manuj & Mentzer, 2008). Global supply chains are a source of competitive advantage. Global configurations of firms provide access to cheap labor and raw materials, better financing opportunities, larger product markets, arbitrage opportunities, and additional inducements offered by host governments to attract foreign capital (Manuj & Mentzer, 2008).  A MNE needs to be aware of the risks and the impact to its operation and have potential contingency plans to cope with supply chain interruption (Daniels, et al, 2009).  The benefits of a global supply chain far outweigh the risks that may never materialize.  An informed manager who knows both can better make strategic decisions for their MNE.

References

Barry, J. . (2004). Supply chain risk in an uncertain global supply chain environment. International Journal of Physical Distribution and Logistics Management, 34(9), 665-667.

Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2009). International Business (12 ed.). (S. Yagan, Ed.) Upper Saddle River, NJ: Pearson Education, Inc.

Faisel, M.N., Banwet, D.K., & Shankar, R. . (2006). Supply chain risk mitigation: modeling the enablers. Business Process Management Journal, 12(4), 535-552.

Manuj, I., & Mentzer, J. (2008). Global supply chain risk management strategies. International Journal of Physical Distribution and Logistics Management, 38(3), 192-223.

Ritchie, B.T., & Brindley, C. (2000). Disintermediation, disintegration and risk in the sme global supply chain. Management Decision, 38(8), 575-583.