We are born into a world of risks. We never know from one minute to the next what fate has in store for us. As a result, it’s silly to believe we can avoid risks. It’s simply not possible. Facing risks head-on is always the best strategy. Supply chain professionals are certainly acquainted with risks and risk-taking; however, their principal concern is managing risks. Like Broadway producers, they know, “The show must go on.” However, not everyone appreciates the risks an organization’s supply chain faces. Phil Britt, owner of S&P Enterprises, Inc., reports a recent survey conducted by ISACA found, “Thirty percent of respondents say that their organization’s leaders do not sufficiently understand supply chain risks.”[1]
Business leaders are fooling themselves if they think they can ignore supply chain risks. Paul van Nierop, Product Owner for AIMMS Network Design, observes, “Your supply chain isn’t some fit-and-forget part of your business operations.”[2] Risks are one reason companies must be continuously vigilant when it comes to supply chain operations. Van Nierop notes, “The risks have morphed and broadened. In the wake of a pandemic, with turbulence in Europe and a slowdown in Asia, it’s important to spell out emerging risks alongside existing ones.” He divides risks into three areas: Internal risks (the ones that already exist); external risks (looking outside); and, existential risks (world-changing events). Below are some of the top supply chain risks experts believe will threaten operations over the coming years.
Supply Chain Risks
Internal Risks
• Production Control Risks. Van Nierop explains that quality control and quality assurance are critical for the long-term health of any organization. This is particularly true for manufacturers. He writes, “If you source from outside and haven’t made checks in a while, it’s worth auditing your supplier list and seeing where parts have changed in spec, increased in price without increasing in quality, or even been quietly substituted for ‘equivalents’ you never agreed.”
• Business Information Risks. For years, supply chain experts have been encouraging organizations to create digital supply chains. Some business leaders are finally hearing the message. The staff at Material Handling & Logistics (MH&L) reports a new survey from DP World found, “More than half [of the respondents] (56%) believe digitalization will be the single biggest driver of efficiency, reducing bottlenecks and supporting the industry going forward.”[3] As van Nierop notes, “A smoothly functioning supply chain relies on information. And the higher the number of interactions, the greater the need for it.” Another truism is that with a higher number of interactions the greater the cybersecurity risk becomes. A survey by BlueVoyant found that 98% of polled organizations suffered a supply chain breach last year.[4]
• Planning and Forecasting Risks. If an organization doesn’t keep on top of the ever-changing business environment, plans and forecasts will miss the mark. With so many variables affecting planning considerations, only AI-powered solutions, like the Enterra Supply Chain Intelligence System™, can keep company planning and forecasting processes up-to-date. As van Nierop observes, “It’s only good information that can deliver good predictions and across much of today’s global supply network.”
• Mitigation and Contingency Risks. According to van Nierop, “In turbulent times, the most important plan is an escape plan.” The question is: How do you select the best plan. In order to do that, a multitude of scenarios need to be explored. That is exactly what the Enterra Global Insights and Decision Superiority System™ (EGIDS™) allows organizations to do. Van Nierop advises, “Always have a plan in place that imagines bad scenarios … ahead of time.”
External Risks
• Market Supply and Demand Risks. Van Nierop writes, “Demand rises and falls for any product, and it’s not just a matter of fashions and fads. So it’s important your supply chain management looks at global patterns of consumer and business demand, including those that aren’t about your product quality or price: legal reforms, economic contractions, commodity prices that make it impossible for your inputs to be produced competitively.” The Enterra Revenue Growth Intelligence System™ (ERGIS™) can help organizations understand where risks lie and where opportunities exist.
• Competitor Risks. Few organizations have the luxury of monopolizing the marketplace. Competition is generally a factor in every business’ overall strategy. Van Nierop notes, “Technology, products and services are evolving and improving faster than ever. These competitive pressures can show up as sudden declines in your customer base, with customers switching and churning on a daily basis.” To help companies understand the competitive landscape better, Enterra® is focusing on advancing Autonomous Decision Science™ (ADS®). This powerful capability uniquely enables “End-to-End Value Chain Optimization and Decision-Making” at scale and allows clients to uncover and understand the inter-relationships that lead to innovative new product development and innovation, heightened consumer understanding and targeted marketing, revenue growth tactics, and intelligent demand and supply-chain planning. In other words, it helps organizations find a competitive advantage.
• Environmental Risks. Although environmental risks are external risks, they still require internal action. Boston Consulting Group (BCG) analysts insist, “Managing and mitigating nature-related risks will require a much wider lens than most companies have adopted to date. There are nine planetary boundaries that span our world — the land, sea, and atmosphere — and the life that it supports. Planetary boundaries are the boundaries that humans must stay within to maintain a stable environment and decrease the risk of irreversible environmental change.”[5] They go to explain, “The planetary boundary that many are familiar with is climate change, but it is important to note that climate change is one of nine, with the others being biosphere integrity, land-system change, novel entities (such as toxic substances), freshwater change, stratospheric ozone depletion, atmospheric aerosol loading, ocean acidification, and biochemical flows.” Each of those areas poses a potential risk to supply chains.
Existential Risks
• Economic collapse. Existential risks may not be the most likely risks; however, they are potentially the most important ones to consider. Currently, economists are predicting a near-term recession. Van Nierop suggests companies extrapolate current concerns to economic collapse. He writes, “Not all apocalypses involve zombies. The world’s looking like an uncertain place in 2023, with a lot of countries financially leveraged in ways that may prove dangerous. If a currency collapses or a supply shock hits, entire industry sectors could go down with it — not just bending your supply chain but breaking it.”
• Conflict. I raised the possibility of this existential threat in a previous article.[6] Van Nierop writes, “Nobody likes to think about the side effects of NATO going into Ukraine, or China taking action on Taiwan. But these things are all more possible in 2023 than a few years ago. And their effects are felt far beyond their borders.” As we learned during the Soviet era, not all wars are hot wars. Mark Dohnalek, President and Chief Executive Officer of Pivot International, explains, “The global system is undergoing a schism related to two centers of power, one hegemonic (the U.S.) and the other rising (China), along with the strategic alliances respective to each. With the modus vivendi of systemic coordination between Beijing and Moscow and the invasion of Ukraine, Russia appears to be positioning itself to play the long game. The implications of this are a second cold war between the hemispheric alliances that are solidifying between players such as Russia, China, and Iran, each making the others less vulnerable to U.S. and NATO sanctions. We can expect further destabilization and a redrawing of alliances with China’s efforts to reconfigure supply chains away from western or U.S.-controlled sea lanes.”[7]
• Sector Extinction. A final area discussed by van Nierop is sector extinction. He explains, “Multiple industries face extinction in 2023. Of course, this has always been the case — horse-and-cart makers stopped being investment grade around 1910. But the deep involvement of footloose capital in today’s markets can mean a business venture — even an entire sector becoming unviable in a short span of time once investors withdraw their money.” Even if your sector isn’t going extinct, he suggests you look at sectors in which your suppliers operate for possible signs of trouble.
Concluding Thoughts
Discussions like the one above may cause supply chain professionals some sleepless nights. Causing distress was not the reason I wrote this article. Facing the future with both eyes and minds open offers the best chance of dealing successfully with obstacles in your path. The late Helen Keller, a person who knew the drawbacks of facing life with limited information, once stated, “Security is mostly a superstition. Life is either a daring adventure or nothing.” Knowing some of the risks your business may face doesn’t mean you can avoid them. The more your company knows about the risks it faces the better equipped it will be to face the challenge of future-proofing the organization.
Footnotes
[1] Phil Britt, “4 Supply Chain Security Threats and How to Handle Them,” The New Stack, 17 January 2023.
[2] Paul van Nierop, “Top 10 Supply Chain Risks in 2023 & How to manage them?” AIMMS Blog, 1 November 2022.
[3] Staff, “Inflation, Geopolitics to Weigh on Supply Chain Over Next 5 Years,” Material Handling & Logistics, 17 November 2022.
[4] Staff, “98% of Global Firms Report Having Supply Chain Breaches,” Information Security Buzz, 11 November 2022.
[5] James Tilbury, Adrien Portafaix, Rebecca Russell, and Fabien Hassan, “Environmental Risks Go Far Beyond Climate Change,” Boston Consulting Group, 9 November 2022.
[6] Stephen DeAngelis, “Is Your Supply Chain Prepared for War?” Enterra Insights, 18 October 2022.
[7] Mark Dohnalek, “Three Imminent Threats at the Intersection of Geopolitics and Supply Chain,” SupplyChainBrain, 31 May 2022.
