Emerging Market Sourcing - Risk Management

Sourcing from Emerging Markets has its risk associated with Supply Chains. Here are a few things to think about

Unaligned Supplier – All sourcing initiatives begin with testing the supplier capability which involves time and efforts from both supplier & customer. A supplier who faces immense opportunities (as in the case of China & India) poses risks of misalignment with customers. Unless a supplier is aligned to invest time and patience in co development it will risk the sustainability of the supply.

Lack of Good Suppliers – Emerging economies are characterised with few extremely good global players and relatively good/acceptable lower tier (who are not of global standard). Not everyone gets to work with the best suppliers hence they end up with working a large pool of acceptable suppliers.

Supplier Maturity – Supplier Maturity is a broad terms and has many facets. The suppliers who are in the acceptable band face lower maturity levels. Maturity in terms of Quality Management Systems development & adoption, Supply Chain thinking, Green Supply Chain initiatives, Corporate Social Responsibility issues etc.., which would finally affect the buying company. Companies are more interested in production to keep their capacities operating and less interested in delivery and quality consistency.

Hidden cost – Emerging market sourcing is clearly about cost saving. A savings percentage ranging between 20% and 45% is claimed to be possible on a landed cost basis. However the hidden costs of improper risk analysis & management risks to lower the cost saving potential.

External factors – Risks are associated with external factors like transportation, infrastructure, political stability, currency issues, government restrictions, customs and documentation issues also increase uncertainty in the supply base.

Consistency & Sustainability – Getting good quality product every time is an issue with companies from emerging market economies. Increasing consistency and sustainability involves higher amount of coordination, constant monitoring and supplier development.

Intellectual Property Rights & Legal system – This risk of piracy market, slower legal system rises risks of sourcing products with high IP content.

Responsiveness – Longer supply chain with increased inventory comes with reduced market side responsiveness thereby escalating lost sales opportunities. These needs to be factored in sourcing risks.