Welcome to the Supply Chain where the Risks Never Stop Coming

Stephen DeAngelis

May 06, 2019

In professional football, a quarterback can “take a knee” while holding the ball to end a play and down the ball. Once the quarterback’s knee touches the ground and referees blow their whistles, onrushing opponents must stop their onslaught. There are undoubtedly moments when risk managers would like to “take a knee” in order to find respite from the risks their supply chains face. Unfortunately, taking a knee is not an option. According to the staff at Supply & Demand Chain Executive, “A new report from Resilinc reveals that global risks increased throughout 2018, with geopolitical conflicts posing some of the most potentially costly and disruptive supply chain impacts.”[1] The Resilinc report indicates the increase was significant with event alerts up 36 percent year over year. Normally, when people hear the term “geopolitical conflicts,” they think about armed conflict (aka war); but, the times in which we now live are anything but normal. The geopolitical conflicts to which Resilinc refers include things like trade conflicts and Brexit, which the company asserts pose some of the most potentially costly and disruptive supply chain impacts. Bindiya Vakil (@BindiyaVakil), Resilinc CEO, notes, “Supply chain, sourcing and procurement professionals are on the front lines of managing global trade risks for their companies. 2018 challenged them in new ways, and 2019 is shaping up to present continued uncertainty as long-standing trade relationships are reconfigured.”

If geopolitics weren’t enough to worry about, risk managers still have traditional risks to counter, like natural and man-made disasters, including climate change, and cyber attacks. According to the Supply & Demand Chain Executive article, “Throughout the globe, the [Resilinc] event data showed that 21,152 supplier and 58,191 supplier sites producing 552,950 parts across multiple tiers in the supply chain were potentially affected last year. The report points to potential vulnerabilities in a significant percentage of global supply chains. Supply Chain Management Review reports that data showed that 66 percent of the sites flagged as potentially impacted by a supply chain event were manufacturers, with only 12 percent identifying an alternative manufacturing site to meet customer needs in the event of primary manufacturing disruption.” As the rock group Imagine Dragons sings, “Welcome to the new age.”

The year ahead

Andrew Rudin (@contrarydomino), Managing Principal of Contrary Domino, believes global issues will affect both companies and communities. “2019 portends to be revenue risk roller coaster,” he writes. “Hold on tight.”[2] He adds, “According to Control Risks, an international consultancy, there are five major global risks for 2019.” Those risks are:

1. US China trade confrontation. “This development foretells a ‘new global order’,” Rudin writes, “and it’s impossible to predict how it will play out.”

2. Three domains of data influencing (controlling?) large populations. “In China,” Rudin explains, “the government’s policy is total control of data. In the European Union, the policy skews toward consumer protection, with the recent passage of the GDPR. And in the US, despite rumblings about the perils of data monetization, our resolve to mitigate problems is tepid, at best. The Control Risks report states, “Brace for the challenge of collecting, storing and transferring data within and between these three domains against a backdrop of inconsistent enforcement and escalating cyber security threats.”

3. Divisive American legislative gridlock. Rudin writes, “This year’s government shutdown provides a glimpse for what’s to come — or not, if positive change is what you’re after.” With both parties already gearing up for next year’s election, dysfunction will remain the operative word in Washington.

4. Weather disruptions. The Control Risks report states, “Extreme weather and all it brings have never been more significant as a business risk.” Rudin adds, “The Economist magazine spelled out the problem, ‘Corporations need to rethink how they approach climate risk. … Two things have changed. First, supply chains have grown complex and global. As links have multiplied so, too, have points of possible failure. Many sit in the tropics, more given to weather extremes than the temperate West.’ Yes, we have no bananas!”

5. Nationless companies. The irony here is that corporate risks include companies themselves. Rudin explains, “The ubiquity and embeddedness of information technology, the distributed manufacturing of consumer goods and industrial products, and global data storage centers defy our ability to know a company’s country of origin, or to figure out where, exactly, it operates.” The Control Risks report states, “[As] globalized companies enter 2019, they risk — ironically — becoming nationless as nationalist politics continue to advance across the world. Formal and informal barriers are rising. Frictionless trade is beginning to rub, supply chains are starting to drag. Business leaders must re-calibrate and adapt to this new reality or global players will end up being played by a world in uncertain transition.”

Control Risks isn’t the only company predicting which risks could have the greatest impact on supply chains this year. The American Journal of Transportation reports supply chain risk management company Resilience360 also published a list of the Top 10 Supply Chain Risks for 2019.[3] Those risks are:

1. Trade wars drive manufacturing network restructuring: “Global trade tensions have led to the imposition of new import tariffs on a wide range of consumer products and industrial components.”

2. Rising demand and fragile supply create raw material shortages: “Supply of some key materials is vulnerable to widespread disruption caused by demand spikes or production bottlenecks.”

3. Recalls and safety scares put quality under scrutiny: “In highly regulated sectors such as pharmaceuticals and medical devices, attention to compliance and quality control is likely to rise, driven by wider public awareness of quality issues and stricter enforcement by regulators.”

4. Climate change impact heats up: “As it did in 2018, the changing climate is likely to have wide-ranging effects on global supply chains.”

5. Tougher environmental regulations make polluters pay: “In moves intended to tackle climate change, local air quality, and other forms of environmental pollution, authorities around the world are introducing new regulations and stepping up enforcement efforts.”

6. Economic uncertainty and structural change put suppliers under threat: “The global trade war, uncertainty over Brexit, and stricter environmental regulations could become driving factors in putting financial pressure on lower tier industrial and automotive suppliers, bringing insolvencies to the forefront of supply chain risk management in 2019.”

7. Cargo caught up in industrial unrest: “Strikes, overtime bans, or work-to-rule can affect any transport mode, almost anywhere in the world. For shippers, the impact of these events can range from the mildly irritating to the considerably disruptive.”

8. Hazardous transport: container ship fires: “Following two large fires on Maersk-operated container vessels in 2018, a number of container ship fires and accidents in the first week of 2019 highlighted again what may become more commonplace occurrences.”

9. Battles at the borders to increase wait times: “Public discourse following the migration influx to Western Europe and ongoing high-profile migrant caravans traveling to the United States has increased many countries’ focus on physical border security.”

10. Drones strike a blow to aviation safety: “The combined ease of drone accessibility and the lack of public awareness surrounding aviation regulations suggest that airport disruptions related to air traffic safety are likely to become more frequent in 2019, and thus present a greater risk of disruption to aviation logistics operations.”

Concluding thoughts

Surprisingly, neither of those lists highlighted the increased risk of cyber attacks on businesses. Such risks are on the rise and becoming ever more costly. In today’s business environment, supply chain management is almost synonymous with risk management. Risks can’t be avoided because many, if not most, of them are out of company control. Companies do have control over how they react to risks. At Enterra Solutions® we call this Enterprise Resilience Management℠. It involves assessing an organization’s most valuable assets as well as its greatest vulnerabilities and devising a plan to protect the former and overcome the latter. Welcome to modern supply chain where the risks never stop coming.

Footnotes
[1] Staff, “Supply Chain Risk Increased 36 Percent in 2018,” Supply & Demand Chain Executive, 8 March 2019.
[2] Andrew Rudin, “Top Global Risks in 2019: Coming Soon to Your Community!Customer Think, 7 March 2019.
[3] Staff, “Resilience360 annual risk report predicts top 10 supply chain risks for 2019,” American Journal of Transportation, 27 March 2019.