Supply base risk assessment and contingency planning in emerging markets

Abstract

With the growing complexity of global sourcing coupled with significant cost reduction initiatives at the individual firm level, supply base managers now reach into emerging markets for the acquisition and procurement of goods and services. The question of managing the risks inherent in sourcing from emerging markets is twofold: 1) What are the common sources of risk? and 2) How can we manage them effectively? Risk is defined here as "the magnitude of exposure to financial loss or operational disruption" and stems from uncertainty in the emerging markets sourcing process. All risk must be evaluated relative to its potential cost exposure and the probability of occurrence. Several generally-accepted contingency management techniques are offered to help global supply base managers and strategic sourcing teams mitigate these potential losses and supply disruptions.