In recent years, the global economy and supply chains have been under stress. After the health crisis, raw material shortages, inflation, geopolitical tensions, and the energy crisis have continued to challenge economic players. In an increasingly complex and uncertain world, organisations are making supply chain risk management and mitigation their top priorities in the coming years.
Supply chain disruptions: Current and future risks
In today’s global economy, companies have become aware of the complexity as well as the fragility of their supply chains. More especially, they have identified the multiple risk factors and failure points that threaten their smooth operation.
Risk #1: Lack of manufacturing capacity
Some companies are not able to produce enough to meet market demand. This is mainly due to a lack of raw materials, as well as labour in certain sectors. This situation leads to repeated product shortages, which have an impact on overall costs, as well as on end customer service and satisfaction.
Risk #2: Cyber threats
As organisations increasingly convert to digital, cybersecurity is becoming a must. Since the health crisis, which was the catalyst for digitalisation, cybercriminals have become far more professional and have turned their attacks into an industrial process. Not all companies have the resources to protect themselves against these kinds of risks, which can have an impact on all links in the supply chain.
Risk #3: Inflation
Rising prices are becoming more widespread throughout the world, both for raw materials and energy. According to a recent study by the consultancy firm KPMG, 71% of global companies consider the rising cost of raw materials to be a major threat to their supply chains. This is especially true given the threat of an economic recession after this inflationary phase.
Risk #4: Geopolitical tensions
Geopolitical tensions on a global scale have increased with the Russian-Ukrainian conflict. The political situation has also highlighted the dependence of many countries, especially European countries, on Russian gas and Ukrainian agricultural resources. Not to mention the deterioration of relations between China and the United States…
According to the same study, more than 6 out of 10 global organisations expect the potential geopolitical instability to have a negative impact on their supply chains over the next three years.
Risk #5: The climate crisis
Observers are reporting a global awareness of the environmental crisis. The crux of the matter for supply chains lies in extreme weather events (drought, storms, floods, fires, etc.) that have increased in recent years. These natural disasters all have a direct or indirect impact on the entire supply chain because of infrastructure deteriorating or crops being destroyed, for example.
How can supply chain risk management be improved?
For all these reasons and to gain a competitive advantage, companies are reinforcing several steps in their supply chain risk management systems. In addition to reviewing long-term procurement and industrial presence strategies, they are focusing on practical solutions to prevent, identify and reduce the impact of future events.
Building a strong supplier network
To improve supply chain risk management and ensure business continuity, companies require a detailed mapping of their suppliers beyond tier 1. This approach must be accompanied by a supplier risk assessment and management system. This consists of identifying these risks and prioritising them, preventing them via an action plan, and monitoring them with the appropriate key performance indicators, as part of a continuous improvement policy.
This strategy must also be extended to CSR and cyber issues, using a win-win approach. As a matter of fact, more and more companies are supporting their network of suppliers with overcoming these new challenges, which must be identified and resolved for supply chain operations to run smoothly.
Diversifying the supply chain
Dual-sourcing (or even multisourcing) continues to appeal to companies. They are even helping to develop more local sources of supply. This risk management strategy consists of locating supply sources (or even an economic activity) closer to consumer markets, especially when these are critical materials and components.
As well as increasing agility, this also enables companies to reduce their lead times and their carbon footprint (and especially their scope 3). According to a survey by Qima, a Hong Kong-based quality control company, two thirds of European organisations say they are buying more from suppliers based in their own country and/or nearby regions. This approach should also be combined with a sustainable procurement strategy.
Increasing responsiveness
Today, supply chains must be able to change and react quickly to unforeseen events. However, only 7% of companies manage to make decisions in real time, as a recent Gartner survey has shown. Supply chain risk management can be facilitated by digital transformation, especially through technologies that are increasing in maturity (like artificial intelligence, for example).
The KPMG study emphasises that 6 out of 10 companies plan to invest in digital technology to improve their supply chain processes and their data synthesis and analysis capabilities.
Which tools can companies rely on?
- Monitoring platforms to prevent events that could impact the global supply chain;
- Real-time data analysis to fine-tune predictions and adjust operations;
- The blockchain to improve flow transparency and traceability, as well as to automate certain processes (like smart contracts, for example);
- Automating low value-added processes (tax calculation, settlements, etc.) to gain more leeway.
The priorities for supply chain management have changed considerably in recent years. They now focus on anticipation and agility, supporting resilient and sustainable supply chains. Through this new paradigm shift, companies hope not only to improve supply chain risk management steps but more importantly, to capitalise on new opportunities as well.
