Risk mitigation (RM) strategies in various business contexts, including supply chain management in the global market, can be partially effective and incur additional costs and risks despite properly addressing a limited number of hazards. For example, single-source procurement models based on reliance on one global supplier can serve as effective RM tools when it comes to risk reduction through decreasing operation costs and better product quality guarantees stemming from selecting the most reputable manufacturer (Majumdar et al., 2021). Despite the local financial and operational advantages, the RM strategy above maximizes the business entity’s proneness to high-impact and major operational disruptions and limits its adaptability to the operational environment’s deviations from the expected state (Majumdar et al., 2021). In particular, the additional unwanted risks related to the chosen strategy might include severe political and armed conflicts, global ports’ blockage due to terroristic threats, and weather disasters in the only supplier’s region of operation. By affecting the goods’ timely movement and delivery, the risks above cannot go unnoticed for the business’s aggregate cost structure by increasing transportation costs or undermining volume-based discounts.
If the company does not consider transitioning to more flexible multiple sourcing risk management strategies, the challenges above might be addressed by means of timely risk analysis and delivery term definition prior to starting business operations with one selected supplier. During the supplier selection stage, the company might benefit from multidimensional assessments of the political climate and typical weather conditions, including region-specific natural disaster risks, pertaining to the prospective supplier’s country. Similarly, the contract development phase should specify force majeure clauses and the supplier’s alternative good delivery methods and routes to maximize its ability to fulfill the delivery obligations. These steps might promote further risk minimization if implemented with diligence and realistic approaches to risk identification.
Reference
Majumdar, A., Sinha, S. K., & Govindan, K. (2021). Prioritising risk mitigation strategies for environmentally sustainable clothing supply chains: Insights from selected organisational theories. Sustainable Production and Consumption, 28, 543-555. Web.