Business as usual?

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As tentative signs of recovery start to emerge, buyers and supply chain practitioners may be tempted to think that they will soon be able to revert to their standard template of activity once again. The dangers and weaknesses that were so evident across international supply chains may quickly become a nasty memory for those that survived relatively unscathed. For others the scars may be deeper. But important questions arise: What can be learnt from the turmoil that swept global supply chains? Is it business as usual? Or has much changed as to the way we view supply chain risk and the way we source from distant locations?

Currency fluctuations have had a major impact. The value of the pound against the dollar fell from $2.10 in November 2007 to $1.37 in January this year, before recovering to about $1.65 more recently. Goods purchased just a few months ago will have a cost attached to them that will inevitably erode retail margins; as in the current domestic market stores will find it difficult to pass on the increased costs to consumers.

The rapid recovery in China’s economy may also stoke inflationary pressure on manufactured goods, which along with a resurgence in global commodity prices, may increase the costs of distant sourcing.

But beyond these issues, a sea-change has occurred. Volatility and turbulence is now the order of the day. Gone are the good times of assured expansion and relative stability, elements that enabled a sliming of the supply base and a stretching of lines of supply. The fragile supply chain structures that were designed in the good times are no longer appropriate, or robust enough, for the new era of higher risk and turbulence.

In order to reduce risk in the supply chain, organizations will have to design in flexibility, moving away from policies that endorse single sourcing to ones that allow for multiple sources of supply where appropriate. This will require a more comprehensive assessment of supplier risk and an innate ability to sense throughout the chain using sophisticated visibility tools that enable a fast and efficient response. Inevitably, these structures will be more complex.

In a volatile world, supply chain complexity is the issue that will have to be tackled if risk is to be mitigated.

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