Supply Chain Risk Top of the Strategic Agenda
Cumulative disruptions have exposed the profound interdependencies and inherent vulnerabilities in today’s over-globalized supply chains.
As a result, Supply Chain Risk has moved to the top of the strategic agenda in most boardrooms, stimulated by a seemingly never-ending
catalog of disruptions.
The three colossal ‘Black Swan’ events of recent years – COVID-19, Suez Canal closure and the ongoing crisis in Ukraine – are being
supplemented with numerous economic challenges.
Global trade flows remain hugely turbulent as the Ukraine crisis creates chaos in Europe-Asia transportation, acrimonious geopolitical disputes
continue to linger between major trading nations, and the ramifications of China’s COVID-19 restrictions cause ongoing uncertainties about
supplies from the world’s largest factory.
A global recession looms, with concerns about the price and availability of energy supplies, increasing inflation and rising interest rates –
resulting in a cost-of-living crisis for consumers, and further uncertainties for business.
Intensifying the uncertainty is a never-ending stream of additional disruptions to global supply chains – including earthquakes, typhoons, floods,
hurricanes, power outages, energy prices, transport disruptions, labor shortages and worker disputes.
Supply Chain Disruption
Supply chain disruptions all too frequently have very visible consequences for customers – especially regarding product availability, order
fulfilment and customer service.
Defined by the Supply Chain Risk Leadership Council as “Any factor or event that can materially disrupt a supply chain, whether within a single
company or spread across multiple companies”, supply chain risk earns a more succinct definition from the Sourcing Innovation blog, namely “If
you’re counting on it, it’s a risk!”
Today’s complex inter-connected supply chain ecosystems embrace a plethora of stakeholders, generating profound interdependencies which
render them vulnerable in today’s volatile world.
In the rampant pursuit of globalisation, three decades of out-sourcing and off-shoring strategies have resulted in many of the supply chain risks
that were previously contained within the company – now becoming positioned amongst the extensive network of supply chain participants.
Many internal risks have become external risks – substantially increasing business exposure.
Furthermore, supply chains are not only exposed to risks whilst physical goods are being produced, stored or transported; they also depend on
numerous third-party providers that we rely on for information technology, finance, energy, telecommunications, logistics and other services, any
of which could fail, causing severe knock-on effects within the ecosystem.
Supply Chain Risks
The better we understand the different types of supply chain risk, their likelihood and potential damage, the more effectively we can identify what
strategies should be put in place to protect the business from their impact.
As most of today’s supply chains adopt lean principles, any sort of interruption can have far-reaching consequences which negatively impact the
company’s production activities and customer service levels.
Some risks are easy to identify, others far less so – and there are some that are completely unpredictable.
Broadly speaking, there are two main categories of supply chain risk:
Business Risks. The myriad of business risks that could impact the supply chain include component shortages, quality defects, supplier failure,
transportation breakdowns, labour disputes, systems malfunction, commodity price fluctuations, operational issues, shipment interruptions and
cross border clearance delays, which are usually due to waiting on information or funds.
Catastrophic Risks. These are the ‘known unknowns’ – events that unfortunately do occur; incidents that are almost certain to happen at some
stage – except that the actual what, where and when remains very much elusive, posing indiscriminate risks to the supply chain that are
extremely difficult to predict. There are three types of catastrophic risk:
- Natural Disasters – such as floods, typhoons, earthquakes, pandemics;
- Sabotage – including war, terrorism, cyber-attacks, political or social conflicts;
- Accidents – including traffic accidents, airplane crashes, ship collisions;
Regrettably these events often have tragic consequences involving loss of life; however, concentrating on the supply chain perspective, these
incidents inevitably result in massive and immediate disruption to the business!
Whilst the catastrophic risks capture global headlines, the smaller, routine business risks that may be more predictable and easier to identify,
can in reality be just as damaging for the business.
Supply Chain Resilience
In today’s complex, connected and volatile world, it is essential therefore for companies to build Supply Chain Resilience – being the the
capacity to withstand, or to recover quickly from difficulties.
A critical element of building supply chain resilience is being ‘prepared’ – becoming better equipped to sense and respond to the various risks
inherent across the ecosystem – and to rapidly recover from such challenges.
With the difficulty of predicting which risks may materialise – and the when and where thereof – then ‘preparedness for risk’ becomes equally, if
not more important than ‘prevention of risk’.
In practise, how many risks can we realistically predict or prevent? Whereas, plans and contingencies can be developed that make companies
better prepared to respond to a whole range of eventualities.
Every business will have – or should have – its own unique risk strategy to evaluate and counter potential weaknesses in individual supply chain
structures and networks. In practice, developing supply chain resilience involves three primary processes:
- Mapping the Supply Chain Ecosystem
- Modelling of What-If Scenarios
- Plotting Likelihood versus Impact
It is essential to map out the whole supply chain ecosystem, identifying all participants and the inter-dependencies. What-if scenario modelling
helps to identify potential weak links and evaluate vulnerabilities. Then for major threats, plotting their likely probability versus their potential
impact helps business leaders determine priorities and allocate resources for mitigation strategies.
Conclusion
Every supply chain is only as strong as its weakest link.
The journey to supply chain resilience and competitive advantage therefore becomes one of Continuous Improvement – endlessly searching for,
identifying and strengthening the weakest link, adopting and implementing the “Find & Fix” approach.
Risk is a certainty. The reality is that things will almost certainly go wrong – somehow, somewhere and sometime for every business – we just
don’t know what, where, or when our turn will come!
Consequently, what matters as much as the risk itself, is how well prepared your organisation is – to sense and respond, to identify, react and
counter the worst effects of whatever mishap may occur.
The uncertain outlook ahead should remind us all that it is not the strongest that survive, nor the most intelligent, but the ones that are most
adaptable to change.
Businesses that cannot, or do not, adapt to the new normal of the post-pandemic world face a very ambiguous future!
The biggest risk is the unknown. If you’re counting on it, it’s a risk. Expect the unexpected – and be prepared!
Mark Millar is an internationally renowned keynote speaker, a respected authority on supply chain and logistics, and author of the widely-
acclaimed book Global Supply Chain Ecosystems. He serves as an Advisory Board Member at the Foundation for Future Supply Chain.
