How to minimize risk in your supply chain?

It is a widely discussed topic among CEOs, COOs and supply chain managers, especially after a black swan event like the Corona pandemic. How to mitigate disruption risk in the supply chain? Will it lead to regionalized supply chains, a reverse globalization and reshoring of production? It might in the longer term for certain product categories, but in many cases (e.g. electronics and pharmaceuticals) it is simply not possible nor affordable. Also, retreating from certain geographies may mean they can’t sell there effectively either. And in dire times, optimal market access is essential

Companies will want to mitigate supply chain risks quickly and make sure they can keep servicing their customer in various geographies continuously. Short term options are building flexibility and choosing low risk strategic locations for crucial nodes in the distribution network. This is exactly why so many North American and Asian companies have chosen the Netherlands to establish their European distribution center.

Go for flexible and reliable logistics solutions
Building flexibility in the distribution network is crucial. The last months showed that shippers that could shift modalities and suppliers weathered the storm best. Some Asian exporters acted quickly when air cargo capacity halved due to passenger aircraft being grounded, and they moved their product to other modalities such as rail, truck and ocean.

Having those alternatives is invaluable and the Netherlands offers the best of all modalities. The Port of Rotterdam connects to 200 deep sea ports around the globe. Europe is served by 115 short sea services, 250 barge and 400 rail services, every week! During the pandemic, shippers have gratefully used these alternatives when road connections were hindered by border controls. Amsterdam Airport Schiphol is the number 2 best connected airport in the world and currently handles twice the number of full freighters compared to last year. The Netherlands’ 40+ inland terminals offer barge and rail services to Europe’s main ports and the industrial and consumer markets. This combination of modalities and connectivity on such a small spec of land can’t be found anywhere else. When the next unthinkable event hits, it is reassuring to know there’s alternatives to get product from A to B.

Choose a low risk location
And it is not only about having five different modalities at your fingertips. Other factors, like politics, security, government effectiveness and legal & regulatory risk are equally important to drive down risk in your distribution network. The Economist Intelligence Unit identifies these risk factors and assesses 180 countries. The table shows the main European economies and distribution hubs and their respective score from 0 (lowest) to 100 (highest) risk. It shows that the Netherlands has the best overall risk assessment and scores particularly well on factors like security, political stability, government effectiveness, foreign trade, financial and infrastructure risk.

 

Marsh, a global leader in insurance broking and risk management, consistently ranks the Netherlands among the lowest risk countries in Europe for operational, political and economic risk. Recent years have shown that political factors have a profound effect on supply chains, such as Brexit and trade wars between the US and China. New shocks cannot always be predicted, but a stable environment does mitigate the risk of disruption. Having a buffer in a strategic, low risk location has proven to be very helpful for companies in the last few months.

Manage risk by outsourcing logistics
Another way to become more flexible and agile is to outsource logistics to specialists. It makes it easier to scale up or down in case of market changes, but it also makes it easier to change the layout of supply chains. There are no fixed costs in your own operation. The trick is to find the right partner.

Our council consists of 300 logistics companies and specialists, the best in the business. Our supply chain solutions managers will help you decide what steps to take, in setting up your own distribution center or in selecting third party logistics service providers. We do that free of charge and without any obligations. We also have a great line-up of consultants, VAT and legal specialist and other professional services. For a comprehensive overview of what we can do for you we created this ‘menu’. We hope to serve you soon!

This is the eleventh Corona update of HIDC (previous ten updates can be found here) on the continuity of European logistics.