SUPPLY CHAIN MANAGEMENT - RISKS MANAGEMENT - Series - 01

 

Managing Supply Chain Risks in a Globalized Economy.

Understanding the Center for International Manufacturing

The Center for International Manufacturing is one of the research hubs within the Institute for Manufacturing, specializing in production footprint optimization, end-to-end supply chain service networks, and global value chains. 

Among its emerging research teams is Industrial Risk and Resilience, which initially focused on plant location decisions. However, since a 2011 survey revealed companies' increasing concerns about supply chain risks, the focus has shifted towards understanding supply chain vulnerabilities and developing processes to mitigate global supply chain risks.

Assessing Multinational Corporations’ Risk Management Capabilities

Through extensive research, the team has been collecting data on multinational corporations' risk management strategies, using the Process Maturity Tool, which categorizes risk management effectiveness into five levels:

1. Level 1: No formal process for risk management.
2. Level 5: Mastery in supply chain risk management.

The average score from surveyed multinational corporations stands at 2.44 out of 5, revealing significant gaps in global supply chain risk preparedness. Two key deficiencies identified are:

• Limited supplier visibility beyond tier 2, leaving companies unaware of deeper vulnerabilities.
• A narrow activity focus, restricting risk mitigation to procurement and distribution, while neglecting critical areas such as research and development, production, sales, and marketing.

How Can Multinationals Improve Their Supply Chain Risk Management?

There are two primary approaches to enhancing risk resilience in global supply chains:

1. Traditional Risk Management Approach

This method, rooted in conventional risk management principles, focuses on:

• Risk Identification: Recognizing potential threats.
• Risk Evaluation: Assessing the severity of risks.
• Risk Mitigation & Monitoring: Implementing strategies to address vulnerabilities.

However, this model does not fully account for the complexity of modern global supply chains. For instance, a typical car consists of 10,000–15,000 parts, sourced from multiple regions—China, India, Brazil, Thailand, and beyond. Limited visibility into the origins of these components makes it difficult for companies to anticipate risks effectively.

2. Configuration-Based Risk Management Approach

This advanced strategy incorporates supply chain mapping and event mapping at a global scale, identifying potential disruptions before they occur. By overlaying real-time risk data onto supply chain maps, companies can pinpoint vulnerabilities and design targeted mitigation strategies.

Challenges in Supply Chain Risk Research

Understanding supply chain risks remains a challenging area, with three main obstacles:

1. Supply Chain Configuration Complexity – It is difficult to map out the precise design of a company’s supply chain, let alone an entire industry’s.
2. Evolving Risk Events – The nature of disruptions continuously changes, and datasets often lack clarity.
3. Future Uncertainty – Emerging technologies, regulations, and industrial shifts are reshaping supply chains, introducing new risks that require forward-thinking strategies.

Conclusion

As globalization intensifies and supply chains become increasingly interconnected, multinational corporations must adopt more sophisticated risk management frameworks. Transitioning from reactive risk assessments to proactive supply chain mapping will be essential in fortifying global operations against uncertainty.

For further insights, refer to Capturing Value from Global Networks, published by the Center for International Manufacturing.

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