Mitigating your supply chain risk in today’s volatile world
“The mark of the man is how he responds to situations. You’re not going to avoid tough times. We’re all over the barrel some of the time. What are you going to do about it?”- Martin Short
Supply chain has come a long way since its 1940’s roots when Industrial Engineering and operations research consolidated into what became known as Supply Chain to meet the needs and solve the military’s logistics problems during World War II.
The advents of mechanization, containerization, and digitization have since revolutionized the industry and have turned what was once a mostly domestic chain of supply into an intricate global network. Today’s supply chains are heavily intertwined, interdependent networks that are hugely political and highly volatile. What was once “made in America” or “made in China” is now designed here, partly made there, there, and there, assembled yet somewhere else and finally, shipped everywhere.
Adding to the complications, highly competitive markets and demanding stakeholders have driven companies to increase efficiencies and decrease waste with Just In Time (JIT) practices, creating what is now a global, yet lean supply chain that leaves itself vulnerable to disruptions.
Although Trump’s tariff war put a dent in margins, it mainly impacted low margin businesses as large high-profit industries are able to absorb the shocks of tariff changes or increased taxes. But for the first time since World War II, thanks to the coronavirus, the global economy is facing the possibility of a true decoupling of vital trade connections.
The ‘Walmart’s’ of the world may have driven supply chains to increase their adaptability by learning to elasticize supply chains. However, they aren’t yet built to withstand a sudden cutoff of supply.
Mitigating your risk
Global supply chains continue to take a buffeting from the coronavirus with the automobile, electronics, pharmaceutical, and retail industries all being effected. From Fortune 1000, a new Dun & Bradstreet study estimates that of the Fortune 1000 have tier 1 suppliers in the area. And 938 have tier 2 suppliers, which feed the first tier. Although likely aware of tier 1 suppliers’ statuses, they (and 5 million other companies globally, by Dun & Bradstreet’s estimation) have little interaction with the tier 2 level they indirectly use, all of which happen to be in the same part of China.
With these increased interdependencies and low inventory levels comes a much more diverse set of risks that go far beyond the threats of natural disasters or logistical issues. Different levels of risk are permeated throughout the supply chain. Along with the advent of social media, changes to shopping habits, and increased awareness of social responsibility come heightened levels of risk in areas such and sustainability, brand reputation, and quality. While deep technological advancements improve how we buy and how we make things, they also come with their own set of risks such as cybersecurity and data protection.
The first crucial step to mitigating risk is to identify it. Caps Research has identified twelve general areas of risk. Each of these areas of risk is underpinned by its own subset of risks, each of which we will delve into, along with actionable steps in our upcoming educational seminars.
Although the world, and its supply chain, has come a long way since World War II, the pace at which it is evolving has never been greater. From blockchain to the Internet of Things (IoT), big data and artificial intelligence (AI), Industry 4.0 continues to revolutionize supply chains and improve how we work. Whether it’s geopolitics or sustainability and social responsibility, business continues to grow in complexity, bringing disruptions and market volatility and a host of unknown risks.
Read also: How to map your supply chain
A global epidemic and burgeoning geopolitical risks have put more eyes on supply chain than ever before. CEO’s, supply chain directors and managers need to understand the symbiotic nature of today’s global networks of supply, value continuity of business, evaluate and manage their risks. Developing a playbook of defensive moves and risk-mitigating actions builds resiliency, qualms stakeholders and customers’ concerns and safeguards your continuity of business.
The case for mapping your supply chain in risk management
Managing supply chain risk has been the hottest topic in global economy of late. It will be nearly impossible to identify supply chain risks without mapping it out. Last week, I shared why supply chain mapping is crucial to every business and how to conduct supply chain mapping but this week, I am laying supply chain risk management at the foot of supply chain mapping. Mapping supply chain highlights frictional points and points at which certain predictable risk can occur and through such endeavor, supply chain risks can be identified ahead of time, manage, transfer, mitigate or eliminate prior to any exposure. The impact of mapping can not be overestimated when it comes to supply chain risk management, you can management what you don’t know.