1. What’s At Risk?
Going Global
Supply Chain Risk in a Global Economy
By Patricia Kagerer
“S
upply chain” refers to pany has a supply chain. The complexity
the flow of goods and depends on the organization’s size and the
services that enable type of product they produce or service
a firm to assemble they deliver. The global economy has cre-
and deliver products ated global supply chains and they are
to its customers. Every com- influenced by political risk, “just-in-time”
inventory, lean production techniques and
single-source suppliers.
2011 will be remembered for
natural disasters,
including the
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2. devastating earthquake in Japan, Insurance Protection unloaded within a few hours.” With
tornadoes and storms creating hav- the increase in shipments and the fast
oc on the southern United States, When negotiating the purchase of insurance to protect turnaround, it has become impossible
an earthquake in Washington D.C., your company from supply chain risks, Leslie Levy August, for customs agents to inspect all ship-
secretary general of Trade Bridge International recom-
floods in New Jersey and wild fires ments at the border.
mends you know or find the answer to these questions:
across Texas. Each disaster potentially
creates a delay in the supply chain. 1. How are your import and export cargoes and/or dis- For a business, failing to provide satis-
Never before has one nation’s econ- tributed goods insured currently? factory compliance records will result
omy been so tied to another. When a in delayed shipments and serious
2. Do you use a forwarder, logistics company or trans-
Japanese supplier cannot export mate- portation carrier to help manage goods in the supply disruption in the supply chain. This
rials, it becomes a threat to production chain? will negatively affect financial per-
lines around the world. formance indicators such as days in
3. What are the goods and their approximate value in inventory, day sales outstanding and
the supply chain on an annual basis?
Risk managers must realize that supply cash flow. The business will also have
chain risks are not limited to product, 4. What is the geographic scope of the supply chain? to endure in depth customs audits
business income and operating expens- during which customs officers will
es on premises and in the building. 5. How are the goods packed? inspect each step of the audit trail dis-
Properly allocated and funded prop- 6. What are your terms of sale and/or your purchase rupting day-to-day business opera-
erty insurance transfers most of the risk terms? tions. Errors uncovered during these
on this type of loss. The risk manager audits will yield heavy financial pen-
must expand the definition and scope 7. If you sell your goods on cost-and-freight terms, do alties and a customs debt.
you have insurance if title to the goods does not trans-
of business interruption exposures to
fer to the buyer?
include the supply chain by reviewing Ultimately, customs risk will have
income streams, processes and vendors 8. If you purchase goods on cost, insurance and freight an impact on shareholders value.
to determine the true business interrup- terms, do you have contingency insurance that fully Customs and finance reporting need
tion exposure. According to risk man- protects your interests as a buyer? to receive the same level of atten-
agement consultant William Austin, 9. Do you have any of these exposures in your supply tion. Truel explains, “All companies
with the firm Austin & Stanovich Risk chain: storage/warehouse exposure, consolidation carefully prepare and check their
Managers LLC, “It is entirely pos- exposure, staging exposure, processing exposure, tax returns. Only a few check their
sible that the most significant business fulfillment exposure? import or export declarations with
income exposure to an organization is the same scrutiny. Yet they have simi-
10. If your goods are insured by you, under a policy in
not related at all to its premises, but that your name, what are the coverage terms? Are any lar consequences for error.”
of a key supplier, key customer, adja- supply chain exposures not covered?
cent building or even key object such as Managing customs risk is often seen
bridge or roadway. as a cost center, but it is also a source
selling book, A Short Guide to Customs of competitive advantage. A sound customs
“The risk management professional must Risks, explains that the world of customs has management process can reduce or remove
think in terms of contingent exposures: What evolved and changed over the years due to customs duties, generate savings and gener-
can happen elsewhere to disrupt operations the development of the global economy. The ally improve cash flow using the many proce-
at any of my organization’s locations? The risk World Customs Organization (WCO) rep- dures available to the compliant trade.
manager’s exposure analysis cannot be lim- resents worldwide customs agencies and has
ited to physical items, and must include the designed instruments and procedure code Organizations must become familiar with
soft side of the organization’s services such that apply to organizations worldwide. The exposure from global supply chain and
as call centers, technical support and order purpose of the WCO is to create uniformity, ensure that they have compliance proce-
processing. It is also possible that the most simplification and harmonization of customs dures and a well thought out risk strategy
significant exposure to business interruption procedures and adhere to standards to secure in place. This creates a need for a com-
may not be insurable due to event (strike), and facilitate global trade. prehensive self-audit system to minimize
peril (earthquake) or affordability (cost).” variation and avoid large penalties from
Truel states that, “due to the increase in a long, drawn-out customs audit. Finally,
While world events may have a direct impact goods shipped around the world, customs having someone in the C-Suite account-
on the supply chain, an unexpected and often agents do not have the man power to con- able for supply chain management com-
overlooked critical process in the supply tinue performing inspections at the bor- pliance is critical. LM
chain risk management deals with customs der. Containers used to take three days to
and trade compliance in a global economy. unload giving customs agents’ ample time Patricia Kagerer is the Vice President of Risk and
Catherine Truel, founder of the International for an inspection. Thanks to technology and Safety Management for CF Jordan Construction, a
Trade Instrument Ltd and author of the best process improvement containers are now Texas-based construction company.
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