Manufacturers, with interdependent global supply chains, are faced with the challenge of employing effective global risk management strategies that encompass a full view of both external and internal risk factors.

Is your supply chain susceptible to the butterfly effect?

Seemingly small (and unconnected) events can have large consequences. Scientists describe this as the butterfly effect. The most common (and probably an oversimplified) example cited is that butterfly flapping its wings in Africa can cause a hurricane in Europe. Read more on the butterfly effect here.

Now think about your supply chain (and your business): Where are your customers? Are they all over the world? Or in a few continents? Or in a few countries? Or in a few cities? Or in your neighborhood?

How about your suppliers? Where are they located? Do you supply particular products, overall; are your suppliers well distributed across the world?

We can similarly extend this thought to your employees, your partners, and in general, to all your stakeholders. Further, this can even be extended to your competition.

The point to ponder is this: Can seemingly unconnected events impact the flow of your products to the customers? Is your supply chain susceptible to the butterfly effect? For example, can a natural disaster in one country impact your supply chain? Can a strike in a totally different industry have cost implications for you? Can a coup in one country mean you are left scrambling for alternate sources of supply? Or make your employees flee the country? Can the bad economy in one country reduce a percent or two of your sales by making your customers look for cheaper alternatives? Can your partner or supplier simply disappear because the government changed hands? Can competition pop from anywhere in the world?

Read Also: A Guide to Supply Chain Management: Making Intuition More Valuable

Global supply chain management: understanding your risk factors

I­f any of these things are true in your business, then my friend, you have a global supply chain. You will have to always be aware of these possibilities, yet, the cost pressure would be such that you cannot completely revamp your supply chain. You might have to hire people with skills just to mitigate these types of supply chain risks. You might find yourself justifying the headache of dealing with the challenges as unavoidable and the cost of doing business.

Global supply chain management requires a strong awareness of these challenges. Posting appropriate personnel to keep the risk factors in check is one thing; having a whole department dedicated to the science of what-if scenario planning is another. A global company takes time out every year to appropriately assess and evaluate the different possible scenarios. And the scenarios in question in a global company are not internally focused; instead, they are focused on the what-if possibilities that are external to the company. Any global supply chain would do well to invest in these capabilities. A very good example of this is the Shell company and you can read it here. The understanding of the global nature of their business led them to do some serious thinking which led to a different course for the company. In a truly global business, the words of Andrew Grove that only the paranoid survive might be even more applicable than a non-global business!