In global trade, it’s not enough to ensure your own business is in good working order. You also have to determine that all your suppliers and partners—even your buyers—are efficient, dependable, financially sound, and from a legal perspective, on the up and up. This process of determining suitability is the crux behind managing your supply chain.
What is a global supply chain?
Simply put, a supply chain describes the steps taken and players involved in getting your goods or services to your customers. It starts with raw materials and ideas, and it’s not over until final delivery—and of course, payment.
If you have a weak link in your chain, chances are, the whole process is going to come apart at some point. So it’s important to take steps now to ensure yours is strong, flexible and resilient. Here’s some background and advice shared by our panel of industry experts during our recent webinar, Stronger Links: Managing Your Global Supply Chain. We provide brief highlights below, but if you’d like to hear directly from the experts, watch the webinar recording.
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1. Hallmarks of a strong supply chain
- Solid, well-defined strategy
- Built-in mechanisms for improvement
- Use of technology and data
- Optimization of inventory
- Financial capacity to fuel operations
- Flexible in ability to adapt products to meet changing needs
- Scalable output in sync with demand increases or decreases
- Compliant with national and international regulations
- Internal visibility and external transparency
2. Common supply chain risks
- Political volatility: In particular, recent tariffs and countermeasures
- Cyber security: Including data theft, cyberattacks and malware
- Supply disruptions: Arising from natural disasters or supplier problems
- Financial issues: Financial stability of both your buyers and suppliers will ultimately affect your own bottom line
- Reputational damage: Even the hint of scandal can have a huge, negative impact
3. Your good name means everything
Corporate social responsibility (CSR) refers to the economic, social and environmental impact a company has while it operates its business. There are several CSR-related risks that can affect your corporate reputation, including:
- Business ethics, such as corruption and money laundering
- Environment and climate change
- Employment and labour
- Social and human rights
Even if you have an impeccable track record and the best intentions, here in Canada, you’ll be judged by the company you keep. The reputations of all the companies in your supply chain can define you. The simple act of exporting means you’ll be subject to the regulations of different jurisdictions across the globe. Regulators in international markets scrutinize not only companies that are incorporated in their own country, they review all activities that pass within their borders. Case in point: the European Union’s (EU) General Data Protection Regulation. If you’re selling goods or services online to an EU citizen, you’re governed by this law.
4. Vetting your supply chain
Free advice can be priceless, especially when you’re checking out potential suppliers. Consider these no-cost reputable sources:
- TRACE Bribery Risk Matrix: Measures bribery risk in 200 countries
- EDC InList: Find trusted service providers, vetted by Export Development Canada. (Currently features freight forwarders, with more trade service professions to be included in the future.)
- Trade Commissioner Service (TCS): With more than 1,000 trade professionals on the ground in 160-plus countries, these people have direct knowledge of trade suppliers with demonstrated track records.
5. Exporter tip
When it comes to sourcing suppliers of commoditized products, Solace Power looks for guarantees in quality, volume and timelines. In addition, they consider geopolitical risks. When dealing with their original equipment manufacturers (OEM) customers, they ask: “Who would you like us to work with?” It’s a great shortcut, not to mention a win-win, in supply chain vetting. Smaller companies such as Solace—that are still establishing their brand—earn easy points with potential high-end suppliers by being backed by an OEM. It has the added virtue of cutting through a lot of effort in identifying risky partners, since the recommendations come tried and true.
6. Get in shipping shape
When you’re shipping products across international borders, there’s a number of factors and rules of which you should be aware.
- Incoterms: The International Chamber of Commerce’s (ICC) Incoterms (short for international commerce terms) are the globally recognized essential terms of trade for selling goods. They’re the rules that define the responsibilities of buyers and sellers in the delivery of goods under a sales contract. If you’re using a freight forwarder, they’ll be aware of any incoterms that affect the movement of your goods.
- Landed cost: The landed cost reflects the total cost of getting your product to your customer and includes the original product price plus transportation, customs, marine cargo insurance and any other fee paid during the preparation and delivery process of your goods. Shipa Freight is an online tool that provides real-time global freight rates for your reference.
- Customs: Research is critical in understanding the particular customs’ regulations of the country to which you’re exporting. Each market can have vastly different permit requirements, for example, and the fines can be steep if you haven’t met those requirements. Here’s some agencies and resources that can help:
7. Stickhandling financial risks
Going global offers a world of opportunities, but also more financial risks. Being prudent and using these mitigating tools will help you capitalize on growth.
- EDC Credit Insurance: Insures your receivables against customer non-payment
- Foreign Exchange Facility Guarantee: provides a buffer against foreign exchange risk without committing your capital
8. Contract clauses
Little words can have a big impact when it comes to contracts, corporate social responsibility and potential liability. While it’s critical to get the proper legal advice when finalizing your agreements, here’s a primer on the three categories of CSR-related contract clauses:
- Enforcement of standards: If you’ve developed particular standards for your own company, you can insist that your suppliers and their sub-suppliers adhere to those same standards in your contract.
- Right to monitor and inspect: This reserves your right to inspect a factory where a component or product is produced, including the inspection of the offices of your service providers. The ultimate discretion to exercise this right rests with you, the buyer.
- Mandatory monitoring and inspection: Mandatory monitoring and inspection stipulates that periodic, unannounced inspections will take place. Take note: These are among the riskiest clauses from a legal perspective. Taking on the obligation to inspect your suppliers means you’ll have to act if you discover a contract breach.