With supply chain networks in their thousands, the risk landscape has become very complex, not least for Asia-Pacific’s number one online shop Lazada Group. We spoke with the company’s head of group risk and internal audit, Gordon Song
What are your biggest supply chain challenges?
From an e-commerce marketplace platform perspective, the two biggest supply chain risks are:
(1) Handoffs and touchpoints: In the process of getting products from merchants to customers and from customers back to merchants, there are numerous hand-offs and touchpoints. The process is complex and susceptible to error and fraud.
(2) Logistics capacity and capability: There are not enough logistics players equipped with the capabilities and capacity to effectively handle an e-commerce marketplace model. Most logistic players are used to a hub distribution model, whereby goods are distributed from a central hub or warehouse, but not a drop-ship model, whereby goods are delivered directly from the manufacturer to the retailer or customer. A drop-ship model is more prevalent in this market.
How are you dealing with these risks?
We rely heavily on our system to track deliveries and returns. We are also building more capabilities with our supply chain partners, in particular our merchants. At the same time, we impose ‘penalties’ on errant merchants and third-party logistics providers to ensure compliance with key performance indicators and service level agreements. We have also built our own logistics company to supplement the capacity in the market and to ensure that service standards meet our customer value proposition.
The panel session you’re participating in has a suggestive title – Managing supply chain risks and not letting risk management get in the way. Can risk management get in the way of supply chain risks?
Risk management can get in the way of anything if it becomes rigid and non-conducive to business. But my biggest concern is if a business believes that insurance will take care of all problems – nothing can be further from the truth. Supply chain risks (and many other risks) are best managed upfront and through well-negotiated contracts, service level agreements, incentives and penalties, etc. In this sense, risk management may not ‘get in the way’, but can cause the business to take a ‘soft’ approach to dealing with third-party risks.