With the complexity of global supply chains inevitably comes risk. ITM Assistant Editor Caitlin Gittins explores these ongoing challenges and the various ways to manage them
Supply chains are intricate and complex networks that span across the globe, facilitating the movement of goods and services from manufacturers to final consumers. While they play a vital role in driving global trade, supply chains are not without their fair share of risks and obstacles. The past three years have brought unprecedented disruptions to supply chains; from the ongoing effects of the COVID-19 pandemic to the obstruction of the Suez Canal and the conflict in Ukraine, the need to foster supply chain resilience has never been greater.
As supply chains grow increasingly global and even more complex, the risks that are connected to them multiply and intensify. Therefore, supply chain risk management must be a focus for all businesses. While the most severe supply chain disruptions witnessed in recent years are subsiding, new challenges are arising that may influence the course of the years to come.
According to Maersk, the main risks for supply chains in 2023 are a slowdown in global trade growth; continued high energy prices; rising inflation and interest rates; shortages of skilled workers and raw materials; weather events such as hurricanes, floods, and droughts; geopolitical tensions and civil unrest and higher pressures for sustainability.
Researchers and industry experts often categorise these risks into two categories: Internal and external risks.
Internal supply chain risks
Internal supply chain risks are those which originate within the organisation. These might be risks caused by a disruption to your internal operations or processes, such as a mechanical breakdown that prevents you from reaching the required volume of produce. Internal risks also entail those involving personnel. For example, key members of staff leaving their posts without the organisation having enough time to replace them can lead to fractured relationships with suppliers. Not being aware of how to manage both internal and external threats and challenges is also considered to be an internal issue. Finally, there are those risks which arise from a corporate culture that does not encourage transparency and honesty.
External supply chain risks
External risks tend to be much more common. Changes in demand, for instance, can lead to either excessive production and wastage of goods or, conversely, a surge in demand without sufficient staff or resources to meet required stock levels. Additionally, heightened competition for skilled labour can hinder companies from timely product delivery or service provision, and may impede the ability to assess, monitor, and mitigate supplier risks effectively.
As the logistics and supply chain sector embraces technology, there is also an inevitable surge in cyber security threats. Organisations seeking to leverage digital solutions to streamline supply chains must be mindful of the accompanying risks and able to implement measures to detect and eliminate potential threats.
Geopolitical risks present another recurring challenge. Global political events, like the Russian invasion of Ukraine and China’s zero-Covid policy, have severely disrupted supply chains. Firms must maintain both onshore and offshore alternative suppliers to ensure contingency plans in times of disruption.
Additionally, the ongoing conflict in Ukraine has placed substantial strain on the supply chain due to complex sanctions and regulations. Keeping up with sanctions is challenging so organisations need to know suppliers’ ultimate beneficial owners, directors, and shareholders to comply and to prevent bad actors from undermining their supply chain.
A volatile global economy coupled with post-pandemic economic uncertainty, has raised concerns about a potential global recession. Traditionally, companies increased inventories to ensure steady production, but market contractions have left them with unsold inventories during peak production cycles. Consequently, enterprises are now more cautious with their inventories to avert future complications.
Natural disasters and climate risks pose further challenges as they strike without warning, leaving supply chains vulnerable to property damage and business interruptions. Firms must evaluate the financial and operational impacts in real-time and assess site-specific risks.
In response to the growing focus on sustainability, the supply chain must also adapt to provide low carbon emitting methods and solutions. This requires energy-efficient warehouses and a shift towards renewable energy sources for freight and cargo carriers, like electricity or renewable hydrogen.
The global nature of supply chains also gives rise to additional risks such as communication challenges, exchange rate fluctuations, and regulatory or legislative issues. The UK’s departure from the EU in 2021 exemplified the disruptions that changes in legislative requirements can cause.
Risk management
Supply Chain Risk Management (SCRM) involves the systematic approach of recognising, evaluating, and mitigating the potential risks associated with an organisation’s supply chain. By adopting comprehensive global supply chain risk management strategies, companies can achieve higher operational efficiency, cost reduction, and improved customer service.
Supply chain management refers to the overall management of the movement of goods within an organisation, encompassing all the essential processes that transform raw materials into the final products or services offered by the company. This encompasses planning, sourcing, procurement, conversion, and logistics management.
Assess and plan
Initiating a supply chain risk assessment serves as a crucial initial step to identify and prioritise focus areas effectively. Given the limited resources of risk and compliance teams, creating an action plan that targets high-priority risks enables them to allocate their time where it matters most.
Establishing a robust risk management approach is fundamental for enhancing supply chain resilience. This involves identifying potential risks, continuously monitoring threats and disruptions and devising strategies to mitigate these risks. Implementing a comprehensive risk management system facilitates the swift and efficient sharing of risk-related information, enabling the company to proactively prepare for potential disruptions well ahead of time. To ensure ongoing efficacy, the risk management approach should be regularly updated.
By mapping the various dependencies within the supply chain, the company gains a deeper understanding of potential points of disruption. These dependencies may include critical systems, suppliers, and raw materials, among others. Once mapped, the company can explore different scenarios and develop action plans to address the impacts of potential disruptions to these dependencies. For instance, the company can plan responses to scenarios such as delays or unavailability of key raw materials, or disruptions caused by weather events or civil unrest affecting shipping. Efficient scenario planning strengthens supply chain resilience, empowering the company to respond swiftly and effectively to diverse challenges.
Invest in relationships
Collaborating closely with key suppliers and business partners is crucial for enhancing the overall resilience of the supply chain. Through effective cooperation, there is an opportunity to foster better data sharing, leading to improved supply chain visibility. Companies that prioritise end-to-end visibility are better equipped to tackle challenges arising from supply chain disruptions. The interconnectedness of different stages within the supply chain enhances its resilience and agility.
Such collaborative efforts not only promote transparency but also drive higher ethical and environmental standards. When the goal is to enhance sustainability, working hand-in-hand with suppliers and business partners becomes instrumental in achieving that objective. By sharing pertinent data and collaborating on sustainability initiatives, the entire supply chain can progress towards a more environmentally friendly approach.
Treating suppliers as partners is highly recommended, as it fosters a joint approach to identify and mitigate supply chain risks. Aligning suppliers’ business continuity and disaster recovery plans with one’s own ensures a seamless continuity planning process. Maintaining transparency with suppliers, even when it may involve potential reductions in sales volumes, is crucial to building enduring partnerships. Transparency facilitates the development of successful strategies to address supply chain risks, benefiting both suppliers and buyers in the long run.
Expand supplier options
Being over reliant on a limited number of suppliers will only amplify exposure to risk, as a disruption to any one of them can significantly impact the supply chain.
Evaluating the health and resilience of both existing and potential suppliers is of paramount importance. Gaining a deeper understanding of their overall stability allows for the identification and prioritisation of key suppliers. Additionally, this analysis helps in recognising areas where diversification is needed. Conducting due diligence on the vulnerabilities of potential partners is crucial to ensuring that new relationships align with the supply chain risk mitigation strategies.
By diversifying the supplier base and being mindful of the health of existing and potential partners, organisations can fortify their supply chains against potential disruptions. This proactive approach enhances the supply chain’s ability to withstand challenges and ensures a more robust and sustainable operation.
Make use of data
Making use of the data generated throughout the supply chain offers numerous advantages, including the ability to predict and prepare for disruptions, optimise logistics operations, and reduce wastage. Emphasising digitisation within the supply chain facilitates extensive data collection, thereby enhancing end-to-end visibility. This data can be harnessed to assess demand requirements and evaluate responses to various potential disruptions like typhoons, earthquakes, or floods. By incorporating scenario planning, companies can utilise this data to identify opportunities for energy conservation and sustainability improvements. Additionally, rapid detection of issues and disruptions allows for prompt assessment and decisive actions.
Supply chain analytics play a vital role in achieving more accurate forecasting and synthesising data effectively. Implementing a data management and forecasting platform enables proactive identification of supply and demand outliers, offering predictive analytics that unveil future trends related to sales demand, exchange rates, and other crucial supply chain metrics. Armed with comprehensive data and analysis, companies can project the potential impact of supply chain crises, empowering them to make swift and effective decisions during challenging times.
Make use of automation
Implementing supply chain automation offers numerous advantages for businesses. By automating various processes, workers can be freed up from mundane and time-consuming tasks to focus on activities that require a human touch, such as strategic decision-making and relationship management.
Automation significantly reduces the risk of errors in supply chain operations. It minimises the likelihood of mistakes like duplicating orders, entering incorrect data from inventory or order details, providing inaccurate customer information, or packing the wrong items in an order.
Through digital automation, crucial information is automatically recorded and updated in near real-time. This enhances supply chain visibility, enabling relevant stakeholders to access vital information when needed, track inventory, and communicate swiftly and effectively throughout the supply chain.
Customers also benefit from a streamlined and automated supply chain. Accurate orders are efficiently fulfilled and shipped, leading to quick deliveries and high customer satisfaction and loyalty rates.
Overall, supply chain automation not only optimises internal processes and reduces the risk of errors but also enhances overall efficiency and customer experience, positioning businesses for greater success in a competitive market.
Prioritise training
For an effective risk management approach, it is crucial that all relevant staff in a company fully comprehend it. By offering comprehensive training to employees across the business, the company can ensure that they are equipped to identify, mitigate risks, and respond to disruptions. To increase the likelihood of the risk management plan’s success, regular demonstration and practice are essential.
Engaging in simulated exercises helps uncover constraints, challenges, and opportunities for optimisation. Regular reviews and documenting lessons learned will contribute to the continuous improvement of the risk management approach.
Prioritise resilience
Supply chain risk mitigation is an ongoing process; the risks faced by businesses will continuously evolve, requiring periodic reassessment of their approach. With global trade growth slowing and energy prices and inflation on the rise, the importance of maintaining an efficient supply chain cannot be overstated. Nevertheless, giving precedence to supply chain resilience can propel a company even further.
In a year marked by potential challenges like weather events, geopolitical tensions, civil unrest, and a growing focus on sustainability, having a resilient supply chain becomes essential for a company not only to survive but also thrive. By optimising agility and visibility within their supply chain, companies prepare themselves to swiftly and effectively address any emerging issues.
Concluding, supply chain risks are complex and continuously changing. Effective management of these risks demands proactive strategies, well-defined contingency plans, and collaboration among stakeholders. By facing these challenges directly, organisations can strengthen supply chain resilience, minimise disruptions, and maintain a seamless flow of goods and services in our interconnected global landscape.
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