Essay: Risk Management in a Globalised Supply Chain

In the quest for competitive advantage, firms (both manufacturing and service) are trying various business initiatives to help achieve it, one of which is sourcing for products, parts, and components globally from different market places in what is known as a globalised supply chain. The factors that have made this increasing trend are numerous and cannot be attributed to a single factor, however, increased economic development, globalisation, cheap international logistics, information and communication technology, increased awareness of the benefits that could be accrued from it are amongst the key factors (Mena et al., 2011). A globalised supply chain affords firms to source product from areas with the greatest expertise, lowest cost, potential for strong collaborative partnership, as well as less regulated operating environments, as such firms use the strategy to increase margins in the ever more competitive business environment. The dash to low cost sourcing often from far east Asia and developing economies have inherent risks embedded in them which when not understood and mitigated could potentially have serious consequence on the continued business of a firm when something goes wrong. More often than not, global sourcing often implies long distance supply chain and long lead-time, thus exposing organisations to considerable risks (McGillivray, 2000; Engardio, 2001; Christopher and Lee, 2004).

The study of risk in organizations is not new (Baird and Thomas, 1985; Baird and Thomas, 1991; Carter and Vickery, 1989; Ghoshal, 1987; Kogut, 1985; Lessard and Lightstone, 1986; Miller, 1992) however, recently that the study of risk in relation to supply chain have become a major area of research in light of the ever increasing risks (Barry, 2004; Cavinato, 2004; Christopher and Lee, 2004; Giunipero and Eltantawy, 2004; Ju ̈ttner, 2005; Manuj and Mentzer, 2008; Norrman and Jansson, 2004; Spekman and Davis, 2004; Zsidisin, 2003a; Zsidisin et al., 2004). According to a study done by Chopra and Sodhi (2004), most companies have developed plans for dealing with and mitigating against recurrent low-impact risks in their supply chain, however, they are not well equipped in dealing with high-impact low-likelihood events.  The implication is that, when the latter event happen, it has the potential to putting a firm out of business altogether as its impact could be severe and catastrophic. As such, understanding global supply chain i.e. its risks, management and mitigation strategies is a topical and important issue for both academics and practitioners in a globalised world with increasing uncertainties.