Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Don’t Become an Accidental Tourist

Global supply chain risk management

Being a tourist in a country where you do not speak the language can feel like having a sizeable slice of your IQ removed. Suddenly, you struggle to complete simple tasks like asking directions and are unable to name everyday items.

Supply chain professionals have become globetrotters as companies continue to expand in foreign markets. That does not make them tourists in the traditional sense, but even seasoned practitioners can trip over foreign interpretations of familiar practices. Supply chain is not a universal language; sometimes there are local phrases that have to be translated.

Often these misinterpretations stem from the way professionals in different countries perceive their role and the competitive environment in which they operate. Mastering the art of managing supply chains in unfamiliar territories is easier if you can decipher and understand these nuances (For more on global supply chain management see last week’s blog by Jordan Kass “What are the Weak Links in Your Global Supply Chain?”)

The results of an ambitious study carried out by the MIT Center for Transportation & Logistics (MIT CTL) is one possible starting point. The survey of supply chain risk management was conducted in eight languages/dialects. The survey yielded 1461 valid responses from supply chain, business, and financial managers in 70 countries.

Respondents were asked to rate the importance of risk prevention versus response. Globally, the clear favorite was prevention with 54% of the managers preferring this option. But, there were some exceptions. In Brazil 53% of the managers polled favored response compared to 28% who put themselves in the prevention camp. It seems that Brazilians would rather pick up the pieces after a crisis has hit than apply an ounce of prevention to avoid it. In contrast, 75% of the professionals in Colombia – Brazil’s regional neighbor – chose prevention.

In another survey question, respondents were asked to rank specific types of supply chain risk in terms of how frequently they occur. Two classes of risk were given: internal and external. Of the internal type, product quality failure led the pack closely followed by raw materials cost spikes, raw material supplier failure, and the failure of a transportation carrier. On the external side, economic recession and market collapse attracted the highest scores. Interestingly, Mother Nature’s interventions – disasters such as earthquakes, hurricanes, and tsunamis – came in last on this question.

The survey also found that people’s perceptions of risk frequency differed significantly from region to region. For example, in North America product quality failure was ranked second in importance and transportation carrier failure came in sixth, but these rankings were reversed in Latin America. Europe and the Middle East share Latin America’s concern about carriers. For Africans, employee theft/executive misdeeds and loss of electricity were more worrisome.

The research team created an index by comparing the rankings of risk frequencies in participating countries to the global averages on this scale. On this measure, Italians seem to be relatively laid back about their risk universe; maybe the Mediterranean climate has a calming effect on these practitioners. Not so in Mexico and West Africa where respondents see riskiness as relatively high.

What conclusions can we draw from this mixed bag of perceptions? The most obvious is that attitudes towards supply chain risk can vary significantly from country to country. A number of factors such as local conditions and social norms influence behavior. Current experience also colors perceptions. The survey was performed in the fall of 2009 during a severe economic recession, and the likelihood of a downturn topped the chart of external risk frequencies. Maybe the responses would have been different if the survey had gone out this August when Pakistan was being ravaged by cataclysmic floods.

On a more practical level, the survey underscores the importance of not jumping to conclusions or assuming the worst when communicating with your foreign counterparts. For instance, don’t be affronted if a core supplier in Rio de Janeiro does not greet your detailed disruption avoidance plan with the same enthusiasm you encountered in Colombia. Try not to get frustrated when a Latin American vendor invests in a carrier performance measurement program even though your top priority is product quality. And if a customer in Italy is not overly concerned about threats to the supply chain – even as your shipments languish in customs inspection channels – don’t get hot under the collar.

Instead, try to find out ahead of time how your trading partners feel about issues such as risk management. By learning the local language of supply chain you can avoid becoming an accidental tourist.

Thanks to MIT’s Dr. Bruce Arntzen, head of the risk management program at MIT CTL, for his insights. A series of white papers on the MIT CTL risk management survey is planned for later this year.