Managing business and export risk

Here are some lessons from KFC’s supply chain “fowl-up”:

• Remember that cost is not the only factor. Consider ancillary charges—costs that are involved in a transaction, but are not related to it, such as the cost of transporting your goods to a dock for shipment. You also need to calculate costs associated with lead times between the time you place an order and when it is received.
• Make sure your supplier truly understands your business. Does your supplier have related or transferrable experience? Do they have the right systems in place? Ideally, you want a supplier who can add value to your supply chain through efficiencies or innovation.
• Determine whether your supplier can meet your specific needs. Does your supplier have the capacity and infrastructure to handle the volume you need? Are they flexible enough to accommodate increased demand or financial downturns in your industry? Can they ramp up quickly?
• Take time to work the kinks out. Tap into your supplier’s experience and resources. Together, you should discuss every potential disruption that you can envision and put safeguards in place in case things go wrong.

Let’s explore some of the common risks affecting exporters’ supply chains.

Risk 1: supply chain partners

A supply chain is only as strong as its weakest link. Be selective when choosing supply chain partners.

Risk 2: shipping and delivery

If you are shipping goods from one country to another, there are other things to consider beyond customs regulations. Some of these factors are unforeseeable and out of your control: delays due to weather complications, accidents and equipment breakdowns. However, there are still steps you can take to safeguard against shipping risks:

• Insure yourself against theft and loss. If the unthinkable should happen, you will be glad you protected yourself against financial loss. EDC offers a range of insurance solutions to protect you.
• Work with reputable freight forwarders and transportation agents. Use an experienced partner to help ensure that your shipments transition smoothly from road to sea or air and back on the road seamlessly.
• Factor in time for delivery delays. Leave a little wiggle room in your schedule that will let you deliver to your customer on time even if there are shipping delays.
• Have a back-up plan. Could your shipment be transported by air if the sea shipment is delayed? Do you have a reliable alternative?
• Be open and agile. Things happen in shipping. Be open to changing your processes or finding new suppliers.

Risk 3: trade compliance

To keep your global supply chain running smoothly, you need a sound understanding of your industry’s customs and regulatory requirements. As the Exporter on Record, you will be held accountable for the accuracy of your documentation and record-keeping. Mistakes and misinformation could result in fines, penalties, investigations, shipment seizures or quarantine, denied entry into the country and possibly even criminal charges.

Here are a few things you need to consider to be compliant:

• Trade agreements and rules
• Reporting requirements, import procedures and logistics
• Canadian and foreign tax laws
• Other special compliance issues

Risk 4: financial crime

Financial crime includes money laundering, terrorist financing, fraud, corruption and bribery.

How can you protect your business operations and reputation from financial crime?

Conduct due diligence
Get to know your market and your suppliers very well.

Be vigilant
Monitor at-risk transactions and keep an eye out for anything that seems unusual.

Know the red flags
Be ready to act if you have concerns about a supplier or buyer.

Create a plan 
Know what to do and where to turn to report financial crime. Consult EDC’s document, Financial Crime in International Trade, for more about mitigating this risk.

Once you are familiar with your supply chain risks, put measures in place to manage them:

• Maintain partner scorecards
  Prepare a list of the most important criteria for each of your suppliers (quality, timeliness, payment history, etc.) and evaluate them regularly.
• Use a supply chain management system
  This will allow you to track your customers, logistics and billing.
• Implement a vendor management process
  Qualify and manage your suppliers using clear processes and procedures.
• Ensure clear lines of communication
  This is crucial to ensuring the smooth operation of your supply chain and all communication between you and your suppliers.
• Use a quality management system
  This allows you to measure the cost of poor quality in your supply chain.
• Develop cost-recovery practices
  To cover all the costs involved in your project, work with your Chief Financial Officer and Risk Manager to put practices in place that ensure cost-recovery.
• Integrate your operations with those of your suppliers
  By doing so, you will do a much better job of sharing risk and data that supports your risk management strategy.

Here are some resources that will help you dig deeper into supply chain risk:

• EDC’s online guide Playing by the Rules provides a comprehensive overview of trade compliance.
• EDC’s publication, Financial Crime in International Trade, offers tips and suggestions for dealing with this trade challenge.
• Public Safety Canada has a list of entities sanctioned by Canada’s Anti-Terrorism Act.
• EDC’s three-part series on Rules of Origin covers the topic well, offers tips and advice, and outlines differences between the North American Free Trade Agreement (NAFTA) and the Comprehensive Economic and Trade Agreement (CETA), which covers Canada and Europe.
• EDC’s article, Confused about exporting jargon? 11 common trade terms you need to know, sheds light on supply chain terminology.