And on to number six! Over the past five weeks, we’ve published a series of posts related to the Association for Supply Chain Management’s (ASCM) top ten 2024 supply chain trends that were announced in September. We’ve been working our way down the list, covering each topic from various perspectives to demonstrate its role in supply chain management (SCM).
So far, we’ve covered:
Up this week is #6 on the list: Disruption and Risk Management.
Over the next four weeks, we’ll tackle each of the remaining top-ten categories, which include:
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Agility and Resilience
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Cyber Security
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Green and Circular Supply Chains
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Geopolitics and Deglobalization of Supply Chains
The impact of supply chain disruptions
Oracle’s Mark Jackley defines a supply chain disruption as “any major snag in the global chain of manufacturers, suppliers, shippers, carriers (railroads and trucking companies), wholesalers, and retailers that keeps goods and materials from flowing as usual.”
The resultant ripple effect negatively impacts stakeholders across the supply chain — from suppliers to the end customer and everyone in between.
To prevent them, companies must focus on reducing supply chain risks, which can be either internal or external.
“Internal risks include a variety of factors, including inefficient supply chain management (SCM) processes, outdated SCM technology, and human error (such as entering incorrect information on a purchase order),” Jackley says.
Although external risks are largely beyond a company’s control — certain supply chain technologies can help businesses mitigate these risks. More on that ahead.
Top supply chain risks
Though some differences exist, experts pretty much agree on the top supply chain risks businesses face. SAP — which refers to itself as “the market leader in enterprise application software” — describes ten of them, referring to the list as “leading supply chain risks” being discussed by today’s company leaders.
1. Global political unrest
The firm says that in its 2022 Supply Chain Survey, the majority (58%) of business leaders surveyed indicated that “geopolitical unrest” was their top supply chain issue, with lack of raw materials following close behind (44%).
“The past few years have seen a rise in complex geopolitical challenges which, unsurprisingly, can lead to worldwide shortages in energy and raw materials that have an impact on supply chain production planning and logistics,” SAP says.
2. Economy and inflation
This issue is hitting businesses across the board, the firm notes, since “fears of recession, inflation, and poor economic conditions mean higher costs – of fuel, energy, labor, and doing business in general.”
3. Climate-driven disruptions
SAP underscores the “massive toll on supply chains” resulting from extreme weather events that have been occurring over the past several years with “alarming and growing frequency.”
4. Non-compliance with ESG and related mandates
Linking this issue with the previous one, the firm says global climate concerns have led to “growing complexity in environmental, social, and governance (ESG) regulations,” which can carry “enormous” non-compliance risks.
5. Cyber threats
Sure, the internet of things (IOT) and other various connected devices do all kinds of good to optimize the supply chain, but SAP notes that they also increase cybersecurity risks by providing “additional portals for would-be cybercriminals…”
6. Product and raw materials shortages
There can be many reasons for shortages, often due to the other issues on this list. SAP says companies are so concerned about “volatile supply” and resultant shortages that 64% are storing “just in case” inventory, according to a recent SAP survey.
7. Logistics risks
The firm notes that “newsworthy shipping problems” have been all too frequent over the past two years, including “ocean freight bottlenecks, maritime strikes, and widespread port closures.”
8. Demand volatility
Underscoring the role of social media to highlight a new product or trend, SAP says once consumers spot something they want, they expect immediate purchase access — which means “product lifecycles are shorter than ever before.”
9. Lack of transparency
Noting the difference between supply chain visibility and supply chain transparency — which we also covered in our post last week — SAP says the two need to work together to optimize supply chain operations: “…without end-to-end visibility, full transparency is nearly impossible.”
10. Business information risks
Today’s companies make use of massive amounts of data from many different sources to enable “seamless” supply chain and manufacturing operations, and SAP underscores the critical need for this data to be “consistent and reliable.”
The importance of supply chain risk management
In light of the many supply chain risks companies face, the good news is that there are ways to mitigate them by implementing effective supply chain risk management (SCRM).
Writing for IBM, Amanda McGrath and Alexandra Jonker define supply chain risk management as “the process of finding and addressing potential vulnerabilities in a company’s supply chain. …SCRM aims to minimize the impact of these risks on a company’s operations, reputation and financial performance.”
They underscore the importance of SCRM to help companies “build the resilience to navigate uncertainty and ensure business continuity.”
“With proactive preparedness, companies can avoid or minimize disruptions, reduce costs, improve quality and enhance customer satisfaction,” the authors write. “SCRM also helps companies comply with regulations, protect their brand reputation and foster sustainability.”
McGrath and Jonker say that an effective SCRM framework may include four key steps:
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Identify potential problem areas that may need specific attention, aka “risk identification.”
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Assess the likelihood that the issue(s) identified will come to fruition and what the impact may be.
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Mitigate the risk by creating specific strategies to address them, prioritizing the most significant.
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Monitor supply chain operations “and review policies and SCRM procedures regularly,” since SCRM is an ongoing process.
Cited in an article for Purdue University online, Amy David, PhD, clinical professor of management at Purdue, says common supply chain risk mitigation strategies may include:
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Diversifying supplier base to avoid reliance on a single source
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Increasing inventory levels to serve as a buffer during disruptions
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Developing flexible transportation options to adapt to changing logistics needs
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Establishing strong relationships with suppliers for better collaboration and risk sharing
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Conducting regular scenario planning and stress testing for preparedness
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Creating strategic stockpiles for critical goods
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Engaging in industry alliances to share best practices and resources
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Encouraging local sourcing to reduce transportation risks and improve supply chain agility
Another mitigation strategy is the use of risk councils within an organization, as described by Heather Wheatley, Senior Director Analyst, Gartner Supply Chain, in a recent article for Supply Chain Management Review.
Wheatley says that risk councils “bring together supply chain risk owners and other subject matter experts to analyze current risks, plan for emerging ones and evaluate control effectiveness.”
The role of technology in supply chain risk management
Although effective SCRM can be challenging, the good news is that companies which invest in the right technologies can increase their odds of success.
McGrath and Jonker describe five ways various technologies are playing a role in this context:
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Tracking and monitoring: “Sensors, GPS and Internet of Things (IoT) devices can provide a wealth of real-time information at every stage of the supply chain as they help track each phase of the product lifecycle from raw materials procurement to production to distribution and end use. …”
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Automation: “Automation tools and robotics technology can increase efficiency in the supply chain by reducing human error. Automated systems can also operate in hazardous conditions, thereby reducing risk.”
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Blockchain: “As an immutable, accessible ledger, blockchain can enhance transparency and traceability across the supply chain, making it easier to verify the authenticity of products and track the movement of goods.”
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Artificial intelligence: “Artificial intelligence (AI) and machine learning (ML) algorithms can analyze vast amounts of data to identify the most efficient transportation routes, spotlight potential disruptions or inconsistencies and gain insight into environmental impact. Simulation software can help with modeling potential scenarios to predict risk and develop contingency plans.”
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Cloud computing: “Cloud computing can provide scalable solutions for data storage and sharing that make it easier to collaborate and exchange information at every stage of the supply chain.”
“Technology has improved tracking, forecasting and security across supply chains,” Purdue’s David says. “Supply chain mapping has provided companies with a clear view of their supply chain, allowing for the identification of critical nodes and potential points of failure.”
However, she stresses that technology is just a tool that helps “informed and educated humans” make the critical decisions needed.
