Academic journal article Defense Counsel Journal

The Global Supply Chain: Understanding, Measuring, Mitigating and Managing Exposure in a Supply Chain Dependent Globalized Market

Academic journal article Defense Counsel Journal

The Global Supply Chain: Understanding, Measuring, Mitigating and Managing Exposure in a Supply Chain Dependent Globalized Market

Article excerpt

"You have to be very rich or very poor to live without a trade." (1)

WITH THE evolution of technology and society, we have seen a drastic change in the movement of goods and resources between countries. We have advanced from the days of trading silk and spices via ancient land routes to a global system that sends raw materials and finished goods across the world by land, sea and air.

Components are shipped from the point of manufacture to the point of assembly and then to the point of sale. A perfect example of this evolution is the auto manufacturing industry. The Ford F150, often considered a symbol of the American truck, while assembled in Illinois, is largely composed of component parts manufactured in Mexico and China.

The importance of maintaining the safety and predictability of supply routes is not limited to component parts, but includes commodities such as wheat or fruit. The United Kingdom imports 90% of its fruit and 60% of its vegetables. As a result, supermarkets were in danger of running out of these commodities during the height of the volcanic ash cloud that interfered with flights during the summer of 2010.

Arguably the greatest strength of this global economy, the relative ease in moving parts and commodities, is the basis for its greatest weakness--the fragility of the system and the concurrent susceptibility to interruption. This dichotomy was noted by the recently created National Strategy For Global

Supply Chain Security, an articulation of the United States' policy to strengthen the global supply chain. This January 2012 report noted that the global system relies upon an interconnected web of transportation and infrastructure: "[W]hile these inter-dependencies promote economic activity they also serve to propagate risk across a wide geographic area or industry that arises from a local or regional disruption." (2) This article presents the advantages and weaknesses of the modern global supply chain and explores ways for participants in the global economy to minimize or transfer risks resulting from interruptions in the supply chain.

Part I considers the modern global supply system and analyzes potential points of vulnerability. Understanding the evolution of this modern system and its points of vulnerability are key to mitigating risks along the supply chain. Part II analyzes the need for a participant in the supply chain to assess its susceptibility to losses caused by trade disruption and considers what contingencies should be addressed. Part III addresses how a company can shift the risks of losses due to supply chain disruptions to third parties. Developing strategies for transferring risks or liabilities is critical in limiting a company's exposure and losses that can occur when its supply chain is interrupted or broken.

I. The Modern Global Supply System

A. It's a Small World After All

Over the past 50 years we have witnessed the growth of the globalized economy. Global trade has become a precondition to sustained profits as opposed to an economic advantage available to only a certain segment of companies. Conceivably, the global economy has reached a tipping point that renders it unlikely that we will ever see a retraction in the growth and/or reliance on the global supply chain system. Today, more and more companies must manage their global supply chain in order to stay competitive in this new market place.

Global supply chain is loosely defined as an international network of companies that cooperate to convert ideas into goods or services for customers. (3) Partners in this chain must efficiently exchange information as raw materials are transformed to finished goods while traveling through the network's physical infrastructure. Physical facilities include manufacturers' warehouses, wholesalers' distribution centers, retail chains' warehouses, and retail outlets. (4)

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Proper management of a company's global supply chain is key to maximizing profits and limiting losses caused by a disruption. …

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