Unit 4: Risk Management and Sustainability
Types of Risks in Global Supply Chains
Global supply chains operate across multiple countries, suppliers, logistics networks, and regulatory environments. This leads to several types of risks:
A. Geopolitical Risks
These arise due to political events or instability in countries where the company sources, manufactures, or sells products.
Examples:
- War or conflict (e.g., Russia-Ukraine war disrupting energy & grain supply chains).
- Trade wars (US–China trade tensions increasing tariffs).
- Government policy changes, bans, or sanctions.
- Border closures, port shutdowns.
Impact:
- Supplier shutdowns
- Transport delays
- Increased cost and uncertainty
B. Operational Risks
Risks arising from day-to-day supply chain activities.
Examples:
- Machine breakdowns
- Production delays
- Poor quality from suppliers
- Inventory mismatches
- Transportation breakdowns
Impact:
- Stockouts
- Increased lead time
- Customer dissatisfaction
C. Financial Risks
Risks caused by economic changes and cost fluctuations.
Examples:
- Currency exchange rate fluctuations (₹ vs USD)
- Raw material price volatility (oil, metals)
- Supplier bankruptcy
- Changes in interest rates or credit terms
Impact:
- Cost overruns
- Profit margin erosion
D. Environmental Risks
Risks related to natural events or environmental problems.
Examples:
- Floods, cyclones, droughts
- Climate change affecting agriculture
- Pandemic outbreaks (COVID-19)
Impact:
- Disrupted production
- Transport blockages
- Global shortages (e.g., semiconductors)
Risk Assessment and Mitigation Frameworks
Companies use structured frameworks to identify, analyse, and mitigate risks.
A. Risk Identification
Tools used:
- Supplier audits
- Risk mapping (geography-wise)
- Failure Mode & Effects Analysis (FMEA)
- Historical data
B. Risk Assessment
Two major dimensions:
- Probability of risk occurring
- Impact on operations
Common tools:
- Risk Matrix (Heat Map)
- Scenario Analysis
- Sensitivity Analysis
C. Risk Mitigation Strategies
1. Buffering Strategies
- Safety stock
- Backup suppliers
- Extra inventory for critical materials
2. Diversification
- Multi-sourcing instead of single sourcing
- Multiple logistics routes
3. Strengthening Supplier Relationships
- Long-term contracts
- Joint planning
- Capacity sharing
4. Technology and Visibility
- Real-time tracking
- Blockchain for traceability
- AI for demand forecasting
5. Insurance
- Cargo insurance
- Credit insurance
6. Nearshoring / Reshoring
Bringing production closer to home to reduce geopolitical and transport risks.
Sustainability in Supply Chains
Sustainability focuses on minimizing environmental, social, and economic harm throughout the supply chain.
It includes:
- Reducing carbon footprint
- Minimising waste
- Ethical sourcing and labour practices
- Using renewable resources
Green Supply Chain Management (GSCM)
GSCM integrates environmental thinking into supply chain management.
A. Key Principles of GSCM
1. Green Procurement / Sourcing
- Selecting suppliers who follow environmental standards
- Using recyclable or eco-friendly materials
2. Green Manufacturing
- Low-energy processes
- Reducing emissions
- Waste minimization
3. Green Logistics
- Optimizing routes to reduce fuel consumption
- Using electric or CNG vehicles
- Consolidated loads
4. Eco-Design
- Designing products for easy recycling
- Using biodegradable materials
5. Reverse Logistics
- Collecting end-of-life products
- Recycling, refurbishing, remanufacturing
B. Benefits of GSCM
- Cost savings (energy efficiency, waste reduction)
- Compliance with global standards (ISO 14001)
- Improved brand reputation
- Competitive advantage
- Reduced carbon footprint
Indian Context: Sustainability and Risk Management
Indian companies adopting GSCM:
- Tata Motors – recycling water, green logistics fleet
- Mahindra & Mahindra – carbon-neutral initiatives
- ITC – sustainable sourcing of agri-products
- Reliance Industries – plastic recycling & circular economy projects
Key Challenges in India
- Fragmented logistics
- Low adoption of green technology
- High cost of sustainable equipment
- Lack of awareness among small suppliers
Case Example: COVID-19 Impact on Indian Supply Chains
- Pharmaceutical supply chain was hit due to dependency on China for APIs
- Migrant labour shortage disrupted manufacturing
- Container shortages increased logistics cost
- Companies shifted to multi-sourcing and emergency inventory strategies
Summary
| Topic | Key Points |
|---|---|
| Types of Risks | Geopolitical, operational, financial, environmental |
| Frameworks | Risk identification → Assessment (heat map) → Mitigation (buffering, diversification, technology) |
| GSCM | Green sourcing, manufacturing, logistics, eco design, reverse logistics |
| Benefits | Cost reduction, sustainability, compliance, competitive advantage |
| Indian Context | Examples: Tata, Mahindra, ITC, Reliance adopting sustainability initiatives |
Corporate Social Responsibility (CSR)
CSR refers to the responsibility of companies to conduct business in an ethical, sustainable, and socially beneficial manner.
It focuses on:
- Environmental protection
- Fair labour practices
- Community welfare
- Ethical sourcing
- Transparency and accountability
In India, CSR is mandated under Companies Act, 2013 (Section 135) for companies meeting certain financial thresholds (e.g., net worth ₹500 crore+).
Ethical Sourcing
Ethical sourcing means ensuring that the products and materials a company buys are:
- Produced legally
- Manufactured under safe and fair working conditions
- Environmentally responsible
- Free from child labour and exploitation
- Compliant with labour rights and international standards
Ethical sourcing ensures that the supply chain is responsible from raw materials → production → delivery.
Key principles:
- Fair wages
- Human rights protection
- No forced labour
- Environmental sustainability
- Supplier audits & certifications (ISO, SA 8000)
Indian Companies Practicing CSR & Ethical Sourcing
Case Study 1: Tata Group – Leader in CSR and Ethical Supply Chains
CSR Practices:
- Tata Trusts contributes to education, healthcare, and rural development.
- Tata Steel & Tata Motors run community development programs for tribal upliftment.
Ethical Sourcing Practices:
- Supplier Code of Conduct ensuring no child labour.
- Green procurement policies — reduced emissions, waste recycling.
- Using renewable energy sources in Tata Motors’ manufacturing.
Impact:
- Global reputation for ethical business.
- Strong supplier relationships and customer trust.
Case Study 2: ITC Limited – Sustainable and Responsible Agricultural Sourcing
CSR Initiatives:
- e-Choupal program supporting millions of farmers with digital tools.
- Watershed development, afforestation, and rural skill development.
Ethical Sourcing:
- Sustainable sourcing of agri products (soybean, wheat, spices).
- “Responsible Luxury” initiative in hotels (green buildings).
Impact:
- Reduced dependence on middlemen
- Empowered rural communities
- Transparent, efficient farm-to-market supply chain
Case Study 3: Infosys – Ethical Conduct and Green Supply Chain
CSR:
- Education programs (Infosys Foundation)
- Skill development & healthcare
- World’s largest campus with carbon neutrality
Ethical Sourcing:
- Strict supplier sustainability guidelines
- Focus on women-led suppliers
- Renewable energy use across campuses
Impact:
- Strong sustainability brand
- Reduced carbon footprint
Case Study 4: Hindustan Unilever (HUL) – Responsible Sourcing
CSR Initiatives:
- Swachh Bharat hygiene programs
- Plastic waste collection & recycling
- Sustainability Living Plan
Ethical Sourcing:
- 100% sustainable palm oil sourcing
- Supplier environmental audits
- Fair wage policies
Impact:
- More environmentally friendly supply chain
- Improved brand loyalty
Case Analysis: Supply Chain Disruptions and Recovery (Indian Context)
Major Causes of Supply Chain Disruptions
| Cause | Examples |
|---|---|
| Pandemics | COVID-19 shutdowns |
| Natural disasters | Floods (Chennai, Kerala), Cyclone Fani |
| Geopolitics | China dependency, global conflicts |
| Transportation failures | Port congestion, driver shortages |
| Supplier failures | Bankruptcy, quality issues |
| Regulatory shocks | GST rollout, export-import bans |
Case Example: Maruti Suzuki – Semiconductor Shortage
Problem: Global chip shortage due to COVID-19 → Production dropped → Waiting period for cars increased.
Disruption Impact:
- Decreased sales
- Inventory mismatch
- Production shutdowns
Recovery Plan:
- Multi-sourcing (Japan, Taiwan, India)
- Increasing local supplier development
- Strategic buffer inventory
- Long-term contracts with chip makers
Case Example: Amul – COVID Milk Supply Chain Resilience
Disruption:
Nationwide lockdown disrupted transport and distribution.
Recovery Measures:
- 24×7 milk collection centers
- Digital orders via apps
- Localized supply clusters
- Reduced dependency on long-distance transport
Result: Amul operated smoothly when most industries were shut.
Case Example: Tata Steel – Odisha Cyclone Impact
Disruption: Cyclone damaged logistics lines and halted raw material supply.
Recovery:
- Emergency route planning
- Rail freight prioritization
- On-ground disaster management team
- Restored operations quickly
Supply Chain Recovery Strategies (General MBA Framework)
- Visibility & Technology - IoT sensors, AI forecasting, real-time tracking
- Supplier Diversification - Avoid single supplier dependency
- Risk Pooling - Shared warehouses, flexible manufacturing
- Flexible Contracts- Demand sharing, risk-sharing agreements
- Nearshoring / Local Sourcing - Reduce reliance on foreign suppliers
- Agile Logistics - Multiple transportation modes
- Business Continuity Planning (BCP) - Crisis teams and emergency inventory
- Collaboration - Vendor development, long-term partnerships
Exercises / Classroom Discussion Questions
Exercise 1: Identify Sustainable Practices
Choose any Indian company (e.g., Reliance, Titan, TVS) and list:
- 3 CSR activities
- 2 ethical sourcing practices
- 2 sustainability achievements
Exercise 2: Case Discussion on Supply Chain Disruption
Pick any Indian supply chain disruption such as:
- COVID-19 lockdown
- Semiconductor shortage
- Port congestion
Discuss:
- What caused the disruption?
- How did the company respond?
- What could be improved?
Exercise 3: Ethical Sourcing Evaluation
Analyze a supplier from the textile or food industry and evaluate them on:
- Labour conditions
- Environmental impact
- Transparency
- Certifications (Fairtrade, ISO 14001, etc.)
Exercise 4: Debate Activity
“Is ethical sourcing more expensive or more profitable in the long run?”
Prepare arguments for both sides.