Controlling a supply chain can be a very difficult exercise. Businesses can struggle to control what is going on in their supply chain and this can result in failure. More and more companies are failing because of risky supply chain issues. When working within global supply chains a lot of unknowns or changes to previous business methods can result.
With an increasing amount of business being outsourced to other countries, it increases the chance for supply chain problems. Supply chain failures occur when a business gives a supply chain company too much responsibility, especially when they don’t understand how they operate. Not only will companies do this, but they don’t have any risk management tools in place to mitigate issues that they are having in their supply chain.
It is important to highlight why companies are having difficulty with their supply chains and what strategies can be put in place to avoid supply chain failure.
Low-cost country sourcing
Low-cost country sourcing (LCCS) is a supply chain strategy where a company gets materials from an overseas country that has cheaper labour and production costs. By sourcing materials and labour, it cuts down on operating expenses. However, just because your operating expenses have reduced, there could be other costs incurred in using a LCCS option.
With LCCS, there may be currency volatility or corrupt governments in the country you are working in. There may be high fees for shipping or the cost of visiting the supplier might be substantially higher depending on how remote the factory is located.
The location of your supplier’s warehouse may impact on how quickly you are able to receive goods. There could be delays because of weather or goods getting held up at customs. This could impact the health of your inventory control as unreliable shipments from overseas could cause problems if they don’t arrive on time.
If you are not able to provide customers with guaranteed shipments, then it might negatively influence your sales. Without reliable inventory control from reliable shipping as a result of bad supply chain issues, a domino effect may occur.
In LCCS settings, labour laws can be very different from your home country. The overall cost of a good might be cheaper, but the reason it is cheaper might make you uncomfortable. Sometimes working conditions in warehouses are not up to your country’s standard and workers are subject to conditions with substantial amounts of chemicals. In addition, child labour could be going on and general unfair wages to the employees may be an issue in the country.
It is important to do an audit of the warehouse and build a relationship with the factory owner. It is difficult to ensure all processes are transparent but is imperative to have the clearest understanding possible.
Just like social issues, environmental issues are also a concern. Some factories may not use proper waste facilities for their chemicals or claim they recycle but in actuality they do not. Try to assess their environmental policies and see they are putting it into practice.