Navigating risk in globalised supply chains

Today, most Australian-based businesses tap supply chains that extend far beyond the borders to the country, predominantly into neighbouring countries located in the Asia. As more businesses play on the global stage, the exposure to legal, political and financial risks become greater. While many Australian companies have moved their supply chains into the wider region to make them more competitive, few have mapped the vulnerabilities that their supply chains are exposed to. This means too few understand the potential, economic, legal and reputational risks they may have unwittingly exposed themselves to. Navigating this risk is a crucial part of managing supply chains in a globally connected business environment.

Political and economic uncertainties

The globalisation of business has brought new opportunities for many, but it also exposes businesses to instabilities due to political and economic uncertainties. When countries impose changes to taxes including tariffs, it can disrupt an organisation’s ability to import or export valuable inputs into products, affecting the whole value proposition for small and large industries alike.

In one of the most recent examples, the United States of America imposed tariffs on thousands of imported products and materials from China. For many Australian-based businesses with a presence in Asia that rely on imports from or exports to these countries for a large share of their revenue, the changing trade policies between the US and China poses a significant risk to business operations. 

With the potential impact of these tariffs affecting businesses across a large range of industries, many are moving quickly to rethink their supply chains and make them more resilient by making them more stable to further shifts and instabilities in trade policies. By using a cloud-based digital business network, businesses have easy access to alternate sources, lowering the barriers imposed by tariffs — barriers that many businesses of an earlier era would have found insurmountable. 

Policy changes 

Compliance with rapidly changing regulation and policies poses significant challenges for all businesses, including potential disruption, and can impact an organisation’s ability to export and import specific goods and services if not managed quickly.

The introduction of the Modern Slavery Act in Australia will require companies with an annual turnover of more than $100 million to report on the risks of modern slavery in their operations and supply chains. 

Many of the companies affected by this legislation will likely have supply chains which extend into countries located within the Asia Pacific region, often a hotspot for modern slavery. The Global Slavery Index estimates more than 24,900,000 people in the Asia Pacific experience modern slavery working conditions and about $12 billion worth of good imported to Australia are at risk of being manufactured by slave labour. By using digital business networks and the cloud-based risk assessment solutions built on them, businesses can gain greater visibility into the materials, regions and suppliers that are using forced labour. These solutions allow for mapping of products and services being purchased right down to the raw materials. This enables management to quickly and easily evaluate their suppliers, recognise their exposure to risk and mitigate it before they experience negative impact.

As more organisations engage with overseas suppliers, risk management will become an increasingly important issue for businesses of all sizes. By extending the visibility and transparency within their operations and of the operations of their suppliers, businesses can manage and mitigate financial, legal, economic, and reputational risks before they become a problem. Local organisations with global networks must assess their supply chains and develop strategies now to ensure they can minimise disruption in the future.

The author is Henrik Smedberg, regional vice president of SAP Ariba ANZ, the world’s largest business to business network, linking together buyers and suppliers from 3.6 million companies in 190 countries.