Factors affecting Supply Chain - Laxmi’s snippets of wisdom:

 This is a guest post from Hariharan Laxminarayan

Let us this time explain in-depth factors affecting the supply chain and how they contribute to organizational effectiveness.

 

Increased demands from customers for better performance on cost, quality, delivery, and flexibility. Customers are better informed and have a broader array of options for how they conduct business. This puts added pressure on supply chain managers to continually improve performance.

 

Globalization imposes challenges such as greater geographic dispersion among supply chain members. Greater distances create longer lead times and higher transportation costs. Cultural differences, time zones, and exchange rates make communication and decision-making more difficult. Boeing and Airbus have discovered the downside of sourcing from global suppliers. Much smaller suppliers of kitchen galleys, lavatories, and passenger seats have been unable to fulfil orders from Boeing and Airbus, leaving the latter unable to deliver planes to its airline customers.

 

Government regulations, tariffs, and environmental rules provide challenges as well. For example, many countries require that products have a minimum percentage of local content. Being environmentally responsible by minimizing waste, properly disposing of dangerous chemicals, and using recyclable materials is rapidly becoming a requirement for doing business.

 

The financial environment - which includes economic performance - has a major effect on how buyers conduct their procurement operations.

One of the main challenges the financial environment poses to businesses is currency fluctuation. Buy at the right time and return on investment can be huge; invest at the wrong time and you may see yourself losing money.

 

The financial policy of the Bank of our Countries where the main business also has ramifications for procurement departments, as this governs inflation and investor behavior, which affects cash flow.

Meanwhile, the lending activity of banks can constrain procurement activity and put a greater emphasis on cost-cutting if it becomes difficult to secure finance. Similarly, a credit squeeze can often make smaller suppliers vulnerable thereby increasing buyer risk.

 

The environment factor.... is one of the greatest challenges for supply chains. Whether it is resource scarcity or natural disasters, procurement departments are at the mercy of the environment.

In 2013 the Carbon Disclosure Project found that 70 per cent of businesses believe climate change has the potential to affect their revenue significantly.

Organizations are aware of the threats and recent natural disasters have served as a testament to how to freak incidents can devastate the supply chain.

Procurement departments need to plan to manage resource scarcity and spread out their suppliers to minimize the disruption in the event of a natural disaster. Avoiding high-risk zones is also advised.

The 2014 FM Global Resilience Index recently identified the Dominican Republic, Bolivia, and Venezuela as three of the riskiest countries for supply chains, due to their exposure to natural hazards, political risk, and economic instability.

 

The technological landscape is constantly changing and customers have come to expect businesses to operate faster, be more connected and offer them the latest advances because of it.

 

Technological changes are also an important factor. Organizations need to keep on top of changes in the technological environment and how this affects their business. From the products and services offered to the way buyers collaborate with suppliers, technology has a massive impact on procurement.

 

 You have the power. You need to keep abreast of events around the Organizational locally nationally and globally and act swiftly to minimize risk and make the most of opportunities.

Hariharan Laxminarayan is a procurement Professional with 25 years’ experience. He is an active member of the Chartered Institute of Procurement and Supply (CIPS), being a Chartered FCIPS, CIPS Global Congress Member and Chair at CIPS UAE - Northern Emirates. And a person I am happy to have as a friend and mentor for the past several years.