The principle behind effective risk management is the ability to anticipate risks to the organization and mitigate those risks by developing contingency plans to offset various scenarios. Nowhere is this more evident today than the supply chain.
Not since 1994, when NAFTA (North American Free Trade Agreement) disrupted almost one hundred years of established trade patterns, have organizations faced such uncertainty due to political tumult between the world’s largest trading nations.
For many firms, political risk has become the preeminent form of risk today. One of the many benefits of trade agreements such as NAFTA has been the ability of Canadian organizations to develop lasting relationships with suppliers in other countries for goods and services that resulted in improved quality, consistency of service, and lower costs. In other words, increased competitive advantage, supported directly by efficient supply chain management practices.
Trade agreements such as NAFTA, and the growth of globalization, illustrate the importance of supply, not just cost, when it comes to an organization’s ability to remain profitable. Many companies can overcome unforeseen cost increases, but not every company can survive the loss of an important supplier, or supply of its most important raw material. Political uncertainty surrounding trade policies, or assigning arbitrary tariffs on imports from foreign countries, has a trickle-down effect that threatens the long-standing value of supplier relationships, predictability of supply and demand, and, ultimately, profitability.Because of globalization, supply chain managers are best equipped to deal with these challenges through their ability to locate alternate suppliers, establish new transportation routes and negotiate rates effectively for goods and services. Supply chain professionals are skilled at negotiating contracts of sale and shipping terms of sale to limit the organization’s liability, demonstrating the relationship between supplier efficiencies and customer satisfaction.
Efficient supply chains promote integration throughout the organization, coordinating activities with other departments, including production, sales, finance, legal, inventory and warehousing to ensure that supply chain strategy supports and complements organizational strategy. The role of a well-trained supply chain professional in accomplishing these objectives is critical to the organization’s success.
By Laurie Turnbull
Laurie is a supply chain consultant with a leading supplier of customs brokerage, transportation and warehousing services in Canada. He holds an MSc in Operations and Supply Chain Management and has been awarded designations as a logistics professional by the Canadian Institute of Traffic and Transportation, and the Materials Handling and Management Society of Ontario. He is an instructor with the Schulich School of Business and the Schulich Executive Education Centre, and a member of Supply Chain Canada, the leading association and community for supply chain professionals in Canada.