Everyone is happy when things go as planned. Unfortunately, in a world characterized by volatility, uncertainty, complexity, and ambiguity, things seldom go as planned. That’s the main reason why supply chain experts insist supply chains must become more agile and resilient. Few, if any, analysts are predicting fair winds and following seas for supply chains this year. Recently, Thibaud Molin, a partner at the KYU, told reporters at a press conference, “The world has entered a zone of uncertainty.”[1] Although regions of the world vary in the amount of uncertainty they contain, Molin’s assertion reflects the reality that the world remains highly connected. The list of potential risks found around the world is myriad. Discussed below are some the most oft-mentioned risks facing supply chain operations in the months ahead.
Supply Chain Risks
Geopolitical Risks. Geopolitical risks are near the top of everyone’s list. Industry journalist Camille Rustici provides an excellent overview of many of those risks.[2] Included in her overview are: the ongoing Russo-Ukrainian conflict; the Israeli-Gaza conflict; Houthi attacks in the Red Sea; tensions between China and Taiwan; China’s hegemonic ambitions, leading to territorial conflicts with Vietnam, the Philippines, Japan, and India; and rising concerns about North Korean aggression. Harry Moser, founder of the Reshoring Initiative, and his colleague Daniel O’Hara, insist, “Geopolitical disruptions are driving companies to reevaluate their supply chain priorities. COVID shutdowns, the wars in Ukraine and Gaza and increasing tension over Taiwan show that it is past time to evaluate reshoring and nearshoring as insurance against catastrophic disruptions.”[3] There are also geopolitical risks associated with a number of national elections being held this year around the globe.
Climate Change Risks. Another risk area that ranks high on most experts’ lists is climate change. Journalist Ben Unglesbee reports, “Extreme weather events are the top risk facing supply chains in 2024, according to an annual outlook report from Everstream Analytics. The firm attached a risk score of 100% to the possibility of extreme weather causing supply chain disruption.”[4] When two risk areas, like geopolitics and climate change, converge, you can bet disaster lurks nearby. Just such a convergence is happening as I write. Journalist Andrew Freedman explains, “Geopolitical risks in the Red Sea and extreme weather in Central America are converging, jostling global supply chains fed by the Suez and Panama Canals.”[5] He adds, “Most major shipping firms are avoiding the Red Sea entirely and re-routing around the Cape of Good Hope. … In Panama, the drought is tied partly to the El Niño climate cycle, along with long-term, human-caused climate change. Water levels in the reservoirs that fill the canal have plummeted. This has forced the canal’s operator to reduce the number of vessels transiting the strategic waterway by 36% and to focus on water conservation.” Diversions around these two waterways are costing shippers both time and money.
Inflation and Global Economy Risks. The inflation picture is mixed. Some countries, like Argentina, continue to suffer from hyperinflation, while other countries are seeing inflation rates decrease. Rustici observes, “Projections from the IMF suggest [inflation] will further decline to 4.8% in 2024.” Nevertheless, she notes, the world economy could remain sluggish. “China reported only 5.2% annual growth, its lowest since 1990, excluding the COVID period. It is expected to further decelerate to around 4.5% in 2024, according to the World Bank. The World Bank forecasts a third consecutive year of deceleration at 2.4%.” On the other hand, Matthew Bey, a senior global analyst for RANE, predicts, “In 2024 interest rates are likely to start coming down significantly as inflation slows and gets closer to central bank targets. While this will help engineering and manufacturing companies borrow to increase investment and ease inflation on domestic costs (and for their sales), it could lead to a weaker dollar, particularly to the yen. A weak dollar will support U.S. manufacturing exports but will reduce purchasing power for imported materials, components, and equipment.”[6]
Misinformation and Political Risks. Some media outlets have characterized 2024 as the year of elections. It will also be the first global election season during which the ubiquity of generative artificial intelligence will come into play. The fear is that misinformation created by generative AI will play an outsized role in election results. Journalist Kelvin Chan reports, “AI-powered misinformation and disinformation is emerging as a risk just as a billions of people in a slew of countries, including large economies like the United States, Britain, Indonesia, India, Mexico, and Pakistan, are set to head to the polls this year and next.”[7] At least, that was the conclusion of study published by Marsh McLennan, a risk strategy firm, along with the Zurich Insurance Group. How will this impact supply chains? “‘The widespread use of misinformation and disinformation, and tools to disseminate it, may undermine the legitimacy of newly elected governments,’ the report warned. ‘Resulting unrest could range from violent protests and hate crimes to civil confrontation and terrorism.’ … Meanwhile, two thirds of risk experts surveyed expect a multipolar or fragmented world order to emerge in the next decade, ‘in which middle and great powers contest, set and enforce regional rules and norms’, the survey said.”[8]
Concluding Thoughts
Looking back over the past few years, co-author of the Marsh McLennan/Zurich Insurance Group report, Carolina Klint, who is also Chief Commercial Officer for Europe at Marsh McLennan, commented, “It’s been one blow after the other to global supply chains.”[9] Based on the recent past as well as looking ahead, business journalist Rana Foroohar suggests the current global watchword is “de-risking.” She explains, “In 2023, the G7 nations decided to drop the dreaded word ‘decoupling,’ when referring to their policy approach to China, and pick up another, more benign phrase: ‘de-risking’. … Since the pandemic and the war in Ukraine, risk has been associated less with the financial sector and more with corporate supply chains. The word de-risking is thus increasingly being used to refer to the ways in which countries and companies are diversifying their supply chains, by sourcing from multiple geographies and companies rather than just one. This makes sense, as supply chain disruption has been increasing in frequency for the last decade.”[10]
Susan Galer, a Communications Director at SAP, believes companies need to think even more broadly than developing de-risking strategies. She explains, “Gartner researchers coined the term ‘antifragile supply chain’ that goes beyond resilience to ’embrace randomness and uncertainty.’ In addition to agility and responsiveness, they advise companies to manage uncertainty by baking it into supply chain management to learn and evolve against new threats over time.”[11] How do you bake in capabilities that can help address uncertainty. Galer insists generative artificial intelligence is the answer. She cites her SAP colleague, Darcy MacClaren, chief revenue officer of SAP Digital Supply Chain, who “expects a surge in supply chain technology investments that will help organizations sense, recognize, and react to disruptions and opportunities in new and exciting ways in a dynamic environment.” MacClaren told Galer, “AI will take supply chain resiliency to the next level of resiliency that hinges on connected data and collaboration across the enterprise. Business leaders must ensure AI is built-in, relevant, and responsible to achieve measurable business outcomes. As AI is integrated into every layer of the supply chain network, this transformative technology will unleash a new era of hyper-predictive and efficient logistics, revolutionizing the way goods flow from factory floor to consumer hands.”
I couldn’t agree more. That’s why Enterra Solutions® created a family of solutions we call the Enterra System of Intelligence™. The solutions are based on Enterra Autonomous Decision Science™ (ADS®) capabilities, embedded with generative AI we call AILA®. These solutions can Sense, Think, Act, and Learn® to ensure insights are always current and informed. In 2024, the world will remain volatile, uncertain, complex, and ambiguous. Artificial intelligence can help to make sense of it all.
Footnotes
[1] Camille Rustici, “Geopolitical Crises, Climate Change, Shortages: The 10 Supply Chain Risks for 2024,” Direct Industry E-Magazine, 26 January 2024.
[2] Ibid.
[3] Harry Moser and Daniel O’Hara, “Which Regions Are Most at Risk for Supply Chain Disruption?” IndustryWeek, 25 January 2024.
[4] Ben Unglesbee, “Extreme weather is 2024’s top supply chain risk: Everstream,” Supply Chain Dive, 11 January 2024.
[5] Andrew Freedman, “Climate change and conflict converge to disrupt supply chains,” Axios, 24 January 2024.
[6] Daphne Allen, “Keep an Eye on These Risks in 2024,” Design News, 4 January 2024.
[7] Kelvin Chan, “AI-powered misinformation is the world’s biggest short-term threat, Davos report says,” Associated Press, 10 January 2024.
[8] Victoria Waldersee, “Davos 2024: Extreme weather and misinformation top global risks,” Reuters, 11 January 2024.
[9] Ibid.
[10] Rana Foroohar, “Year in a word: De-risking,” Financial Times, 1 January 2024.
[11] Susan Galer, “Supply Chain Trends 2024: GenAI Is Backbone Of Risk Resiliency,” Forbes, 3 January 2024.
