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rubber in certain markets. accelerate consolidation among suppliers in China. For example
The risk that Ammex and most other companies are facing in there are over 100 aluminum wheel manufacturers in China. Ca-
the current climate is pressure to cut material costs and reduce pacity is 100 million vehicles per year whereas global demand is
inventory resulting in greater pressure on their supply chains to only around 70 million. Also, local suppliers that have 70% of their
run more efficiently. According to Bolinger of BBK, in the current revenues tied to export will face distress.
climate, 75% of companies surveyed are pursuing material sav- Khalid Mazid, an Account Manager at Dragon Sourcing has ob-
ings targets of at least 10%. This will be increasingly challeng- served a shift in the global climate for sourcing as a result of
ing for companies, given that the supply base has become much the economic crisis. This has resulted in spare export capacity,
more unstable. a reduction in logistics costs, stabilization of labor inflation and
While some risks re-introduction of export subsidies. To stay competitive, compa-
such as the onset of nies need to be aware of
a natural disaster or these changes. According
swine flu, can be miti- to Simon Sole, companies
gated but predicted, also need to be aware of
other risks, such as a the shift in economic and
disruption in supply or political power that is hap-
business operations pening globally. For exam-
due to an event such ple the new finance center
as the Olympics can be will not be London and the
planned for. Mike Liao of new power brokers will be
Tyco, had a contingency countries such as China
plan when the Olympics and Qatar.
forced their factories to
shut down. They moved Recommendations
their tooling out of the effected area and One of the biggest mis-
were able to continue their business. takes a company can make, says
One of the problems that Neal Beatty, Marnix Ettema, Interim Manager Opera-
General Manager, Beijing for risk con- tions and Supply Chain, is mishandling
sultant, Control Risks highlighted was a crisis. He cites the example of case
that many companies don’t have an ef- where Johnson and Johnson, which
fective risk management strategy which owns the Tylenol brand, affectively
includes lacking a risk register or con- handled a case of tampering with Tyle-
tingency plan such as Tyco did. nol tablets by inserting cyanide which
resulted in 7 deaths. Johnson and
Mitigating risks Johnson’s effective handling of this
There are plenty of warning signs you should be on the lookout case by recalling the entire product and redesigning a new tamper
when dealing with suppliers in the current climate, says Bolinger. proof bottle actually created a lot of goodwill for the company. If
This includes late payment to their suppliers, expedited shipping handled badly this could have meant a major blow to the brand.
and looking at the company’s overall operational efficiency. BBK Is there is a bright side to all this risk talk? Robert Kronhofer of
will work with suppliers to improve their cash flow and reduce the Eurogroup, a European buying made the point that the folding of
need for bank borrowing by improving inventory management of certain suppliers has given bigger incentives for them to negotiate
Chinese suppliers. and push their policies on the approximately 1,000 suppliers they
Other approaches to mitigating risk can include employing the purchase from. Kronhofer notes that the better suppliers hopefully
services of companies such as Exclusive Analysis, which use busi- will survive and will drive up quality. But in China, the climate for
ness intelligence and other methods to deflect risk. Simon Sole, suppliers will improve and this will bring new risks, such as low
CEO, Exclusive Analysis, noted that “Certain techniques such as capacity. For Yann Teste, Director South East Asia of Purchasing
modeling can be used to predict risk and prevent disruptions on & Supplier Management, for Knorr Bremse’s Truck division, they
supply change disruption.” He cites the example of power cuts are getting ready for a rise in commodity prices along with a fight
in Argentina in July 2007, which forced a U.S. company to cut for capacity which will happen as the economy picks up.
production by 50%. The power cuts were a result of reduction in So it seems there will always be risk, no matter the economic
Bolivian supply of oil to Argentina. Such threats can be avoided by or political situation. According to Mark Jarman, VP, Risk Manage-
identifying potential regional threats to a particular industry. ment Services, Lloyd’s Register Asia, 80% of risk comes from
20% of the risks identified. In that case, the best companies can
Risk trends do is to be prepared, know their business, understand the risks
Bolinger predicts that the current economic environment will and have a plan to manage them.
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