Magazine article Risk Management

Managing an Overseas Supply Chain

Magazine article Risk Management

Managing an Overseas Supply Chain

Article excerpt

In March 2008, a fire gutted a South Korean LG Chem factory that was a major source of batteries for computer companies such as Dell. The result: a shortage of laptop batteries that was expected to last for the two or three months it would take the factory to return to full production. Dell immediately announced it was working with other suppliers to continue production.

When a company the size of Dell--the second largest manufacturer of PCs in the world--hits a roadblock in production, it usually has the resources to plug into other suppliers quickly. Smaller companies, however, are not always so well prepared. Yet in an increasingly globalized economy, where many turn to overseas suppliers and manufacturers as part of their business model, it is becoming ever more important for each company to protect itself from disruptions. With competitors waiting to take advantage of any lapse in getting to market, a company's success may depend on how well it handles the unexpected when it comes to its global supply chain.

Preparing for business continuity requires a thoughtful approach that spans everything from selecting an overseas partner to creating a specific fall-back plan and upgrading third party liability and contingent business interruption protection. Risk managers should consider the following steps:

Know your partner.

A company would never team up with a supplier in the United States that it knew nothing about and that had no documented track record. The same caution should be taken in selecting who to do business with overseas. First, understand the environment the company is operating in. Does the country have a stable economy, or is there political volatility that may lead to business disruptions? Is there an adequate legal system to protect contract rights and to ensure there are consequences if quality standards are not adhered to? Second, check references to be sure the potential partner has a good reputation for meeting commitments and delivering quality products. Does the supplier carry insurance that provides protection for their buyers? Third, spend enough time with the supplier--in person, at their location--to be sure the operations, record-keeping and capabilities are what is expected. Fourth, and perhaps most importantly, plan to develop a long-term relationship that will build trust on both sides. Changing overseas suppliers frequently in a perpetual quest for the lowest cost is an invitation to turmoil and disappointment. …

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