Supply Chain Network design exercises are sometimes so focused on achieving cost efficiencies, that they overlook a crucial aspect of Supply Chain design-factoring various risks in your Supply Chain design analysis.
With Supply Chains going global, organizations sometimes need to look at multiple countries in a region( say Asia) to find the optimal location(s) for their manufacturing and/or distribution footprint. In a Network design exercise, you may have a set of potential locations and your model then makes the optimal decision/choice based on various parameters. My approach, when using candidate locations for a manufacturing footprint optimization is that the potential locations should be selected based on a standard criteria or framework. This approach is widely used and the criterias used on the frameworks can be Labor, Risks, Government regulations, Trade Pacts etc.
When I started working in the Supply Chain design domain, back in 2006, you had to actually refer several independent databases to quantify various risks for different potential locations. These days, some commercial Network Design packages have inbuilt databases to visualize risk.
Llamasoft Supply Chain guru does an excellent job at mapping various geographical risks and for those of you who have not used this functionality, below are some of the types of risks you can visualize, and then based on the magnitude of the risk, you can assign risk scores to your potential locations. Here is the summary of the types of risk Indexes incorporated in Llamasoft Supply Chain Guru:
Ease of doing business Index: The source of data for this Index is the World Bank website. This index is intended to measure regulations directly affecting businesses.
As shown in the screenshot below, you can visualize this Index on a map and based on the color codes, maybe assign a risk score for this particular Index.
Corruption perception Index: This Index ranks countries based on their perceived levels of public sector corruption. The data for this Index comes from Transparency International. You can find more details on the Index by visiting Transparency International website. Transparency International
You can visualize corruption perception Index also on a map and based on the color codes, assign a risk score.
Political Instability Index: This Index shows the threat level posed to governments by social protest. The data source for this Index is The Economist Intelligence Unit. For details on this Index, visit their site. The Economist Intelligence Unit . The map below shows the Index on a map.
Logistics Performance Index: This score is the weighted average of a country’s score on six key dimensions:
- Efficiency of the clearance process by border control agencies, including customs
- Quality of trade and transport related infrastructure like ports, railroads, roads etc.
- Ease of arranging competitively priced shipments
- Competence and quality of logistics services
- Ability to track and trace shipments
- Timeliness of shipments
The data for this Index comes from The World Bank and the details can be found using the link provided in the “Ease of doing business” section earlier in this article.
Climate Risk Index: This Index indicates a level of exposure and vulnerability to exteme events which countries should see as a warning signal to prepare for more frequent or severe events in the future. The Data for this Index comes from German Watch. German Watch
Once you have all these Indexes for your potential choices, you can create a grid and assign scores for all these risks types to your candidate locations. Then you can calculate an overall risk score for your potential locations.