The world is headed toward a new era of globalization, marked by increased political fragmentation but stronger global digital connection. This challenging environment presents many risks which supply chain managers must carefully plan for and navigate.
Since World War 2, the forces of globalization transformed the world: trade increased, immigration grew, and millions of people were lifted out of poverty. Today, however, times are different. Economic and political events of the last decade have caused growing nationalism, protectionism, and social backlash--leading us to ask, “Is globalization in retreat?”
Surely the nature of globalization today is changing. Global trade agreements are being reconsidered; new trade restrictions are being introduced (worldwide, more than 500 in 2016 alone); unrestricted flows of capital are becoming regionalized; and 20th century political alliances are being questioned or reshaped. At the same time, however, society is trending towards greater global connection. Internet usage continues to increase; use of digital devices continues to grow; global data flows more freely than ever; and, global travel increases each year.
Because of their end-to-end responsibility, supply chain managers are uniquely positioned to help their companies adapt and thrive in this new environment. How?
There are five key risk management tools to deploy:
1. Scenario Planning. We live in a VUCA (volatile, uncertain, changing, and ambiguous) world. The future cannot be predicted. Supply chain managers must plan for multiple scenarios to determine where and how to invest to grow existing markets and/or develop new markets. Keys to successful scenario planning are maintaining a strong position in the core business, placing reasonable bets, and establishing a repeatable process to consistently refresh, stress test, and identify new scenarios.
2. Localization. Supply chain risk caused by government policy can be greatly reduced by establishing local operations. The old model of large scale global production and standardization lacks flexibility and velocity to compete locally. Supply chain managers must plan smaller, flexible operations closer to customers. This necessitates the development of local eco-systems of suppliers and business partners. Keys to success include investing in local people, developing a clear plan for social awareness and inclusion, and implementation of appropriate technology to reduce physical assets and allow customization of products and services.
3. Digitalization. Big data and internet of things create tremendous opportunities to increase supply chain velocity and create new forms of customer value. Digitalization enables faster end-to-end decision making to compete locally while managing globally. Supply chain managers must develop a clear digital strategy which links all partners and provides flexibility to respond to market needs. This strategy can include 3D printing, predictive analytics, web-based mobility, and use of dynamic sourcing models.
4. Government Advocacy. Offering the best products and/or supply chain is no longer enough to compete. Governmental and international laws affect supply chains both operationally and financially. Government advocacy is primarily (i) educating on behalf of customers, employees, and shareholders to inform on issues important for your company, and (ii) building relationships to strengthen your company reputation and establish climate of trust. It’s important to build voice of your employees and stakeholders to tell the story of your company before key legislative and regulatory decisions are made.
5. Global Diversity & Inclusion. Diverse teams generate greater innovation and better results. Global diversity is the variety of skills, training, experiences, perspectives, and cultural backgrounds in a company. Contributing to global diversity are inherent diversity (gender, ethnicity, and sexual orientation) and acquired diversity (cross-cultural experience and educational training). Supply chain managers must be champions for global diversity and inclusion by increasing flexibility in the workplace, decreasing unconscious bias through education and awareness, and intentionally pursuing diversity and inclusion in recruitment, leader development & training, and cross-functional training practices.
The next era of globalization is moving faster than trends towards political fragmentation and/or governmental regulation. Supply chain leaders can no longer afford to focus solely on internal end-to-end functional alignment; success in the new globalization requires deploying the effective risk management tools. Properly deployed, these tools will enable supply chain leaders to reduce exposure to political risk, while increasing growth opportunities.
Customers will be the ultimate judges of how effectively supply chain managers and their respective companies adapt and thrive.