Q: What is the key element that defines good supply chain management?
A: The biggest risk in a supply chain is having sufficient visibility. Knowing the what, where, when and how of your transactions in real time helps you be prepared and anticipate ways to mitigate your own risk. Visibility also helps you gain greater control over your partners and their ability to meet obligations. Web-enabled platforms, software programs and paper-to-electronic processing, once regarded as nice-to-have, now must be considered have-to-have visibility tools.
Q: Does a company need to employ more extensive risk management dealing with China?
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A. Certain risks of doing business in China have become only too familiar: inadequate protection of intellectual property and the rights of shareholders and creditors and insufficient enforcement of product quality standards, to spotlight a few recent problems. But similar risks exist in different geographies, albeit to varying degrees, which requires you to routinely employ the same risk management practices in an informed and consistent way.
These are some supply chain risk issues to focus on in connection with business in China:
- Supplier risk: As it moved to reduce its reliance on the U.S. export market, "China Inc." has built powerful liquidity and financial strength from diversified global export sales. But how much micro level risk do buyers have vis-? -vis their Chinese suppliers? Are your suppliers financially sound? Will they have the financial wherewithal to produce and ship your goods on time? And if they don't, do you have bulletproof backup plans? What impact will a supply disruption have on customer relationships, reputation or liquidity?
- Product quality risk: Can inspections by your staff or by third-party inspectors of goods purchased ensure that you get the goods intended? Letters of credit rely on accurate documents and payment on open account relies on trust. Will these ensure that you get what you meant to buy when you planned to get it?
- Compliance risk: The world is a wonderland of countries with diverse regulatory regimes. Are you fully knowledgeable about the regulatory intricacies of the countries where you operate to ensure that your profit margins are protected? Can you be sure that your company won't misstep and be fined or lose its export privileges–and that you won't go to jail?
Q: Are there supply chain strategies better suited for China?
A. Strategic sourcing and strategic fulfillment studies are analyses that allow you to review different "what-if" scenarios that model real world variables and compare potential costs versus a "perfect world" estimate. Almost as important is a comprehensive compliance assessment that helps you fully understand the impact of regulatory risks associated with the country or countries where you're doing business. These analytical tools pay for themselves.The most important message to anyone doing business globally–in China or elsewhere–is that risk is everywhere. But that's not necessarily a problem: Recognized and tamed, risk can be empowering and can give your business the edge to compete and win.
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