As the world learns to live with Covid, people and businesses look for some kind of normality in their daily routines. When it comes to supply chain risk management, however, vigilance is always required. The Supply Chain Quarterly reminds us, “Supply chain challenges aren’t over yet.”[1] Supply chain challenges are like buses on London’s Oxford Street, there is always another one coming. The Supply Chain Quarterly staff predicts, “Political unrest, raw materials shortages, and rising energy costs will fuel delays and disruptions through the end of the year, and potentially into the summer of 2023.” This reality motivated Rosemary Coates, Executive Director of the Reshoring Institute and President of Blue Silk Consulting, to ask, “Are you really managing risk?”[2] Self-delusion can be dangerous in the risk management arena. Coates notes, “Even when companies develop plans for risk management, black swan events such as the pandemic or an unusual weather event can leave companies unprepared and struggling.”

Stuff Happens

Steve Banker, Vice President of Supply Chain Services at ARC Advisory Group, acknowledges that supply chain professionals try hard to plan for the future. Despite their best planning efforts, he observes, “Stuff happens. … Supply chain professionals don’t believe we are going back to the smooth and predictable supply chains of yore.”[3] Analysts from Aon add, “Our modern world is increasingly more volatile. Every day, business leaders are forced to navigate both known threats and unforeseen risks. The Covid-19 pandemic has not only dominated the risk landscape, it has fundamentally altered how business leaders prepare for emerging risks. Now, a new challenge has emerged: A global recession.”[4]

Alex Saric, Chief Marketing Officer at Ivalua, notes, “Supply chain disruptions, and the reactions to them, do more than simply reduce profits today. They can damage your brand reputation, reduce customer satisfaction, create compliance breaches and curtail overall corporate efforts to improve our world.”[5] He adds, “Contentious geopolitics, cybersecurity threats, climate change and other factors will likely only worsen, supporting the case for us having entered what Gartner has dubbed the ‘Age of Disruption.’ Yet business leaders have a choice as to the nature of this disruption. The default destiny, for those that maintain their current course, is supply disruption and the results that accompany it.” To confront the Age of Disruption, Saric believes companies need to think seriously about their risk management strategies.

Confronting the Age of Disruption

The Supply Chain Quarterly staff reports, “Business leaders say they are … busy fortifying their supply chains to prepare for future problems. Nearly two-thirds (64%) say they are moving from a ‘just in time’ supply chain to a ‘just in case’ supply chain by increasing the amount of inventory they store. More than 60% of respondents said they think the United States should adopt the same approach to overcome potential supply chain crises. SAP researchers said the move to a ‘just in case’ supply chain will lead to higher costs.” According to Coates, such traditional approaches to supply chain risk management are no longer sufficient. She believes they need to be augmented with artificial intelligence (AI) monitoring solutions. Such solutions, she notes, utilize “advanced planning and simulation” to “drive better disaster response strategy.” She concludes, “This is the future of supply chain risk management.”

Because the world is so volatile, creating a risk management strategy is not easy. Analysts from Protiviti explain, “Organizations are recognizing that they must build a more flexible, dynamic and resilient supply chain network that will allow them to pivot with agility exactly when they need to. Their starting point for creating that supply chain? Identifying and analyzing their supply chain risks.”[6] They admit even trying to identify risks is difficult. At the very least, they write, companies should explore regulatory and legal risks; operational risks; material risks; labor risks; single-sourcing risks; market risks; geopolitical risks; and, cybersecurity risks. And, as noted earlier, the analysts at Aon recommend exploring risks associated with inflation and recession. They go on to report that prepared companies share four common characteristics: 1) They embrace risk as a matter of survival; 2) they “don’t hit the brakes on long-term investing — or ignore long-tail risks”; 3) they seek advice and analysis from internal and external sources to ensure they are making the best decisions; and 4) they understand risks are interconnected.

To confront future challenges, Saric insists, “A radical rethink is needed to succeed. Today’s common reactions are logical to help mitigate the future impact of the specific shocks we have recently encountered, but not necessarily those of tomorrow. … Businesses must add rigor to their supply chain risk assessment approach.” He agrees that risks must be assessed. He also insists supply chain visibility must be improved along with supplier collaboration.

Concluding Thoughts

Coates was right to ask: Are you managing risk? All of the recommendations discussed above are meant to help organizations do just that. Saric concludes, “Supply chains are increasingly critical to success or failure. The right approach to managing them creates a significant competitive advantage, improving financial results while also avoiding ethics breaches and helping improve sustainability. Historic approaches are not fit for tomorrow’s global market, requiring a broad rethink to how we assess, mitigate, and model risk. While no risk management approach will be optimal in every scenario and for every business, there are some common lessons to consider. As with so many business imperatives, the path forward requires changes to our talent and processes, with the right enabling technology.” Journalist Sumit Gupta adds, “In the end, every industry is different. It is important for you to take a close look at your field to figure out what makes the most sense for your company. If you are proactive about managing your supply chain, you can reduce your chances of dealing with major issues down the road. Furthermore, you will have an easier time keeping your customers and clients happy, which can be a significant advantage in your industry.”[7]

Footnotes
[1] Staff, “Supply chain challenges aren’t over yet,” Supply Chain Quarterly, 27 October 2022.
[2] Rosemary Coates, “Are you really managing risk?” Supply Chain Management Review, 17 October 2022.
[3] Steve Banker, “The Black Hole at the Heart of Supply Chain Management,” Logistics Viewpoints, 17 October 2022.
[4] Staff, “Making Better Decisions in Uncertain Times: Aon’s 2022 Executive Risk Survey,” Aon, October 2022.
[5] Alex Saric, “It’s Time to Rethink Supply Chain Risk Management,” Ivalua Blog, 19 September 2022.
[6] Protiviti, “Creating a more flexible and resilient supply chain starts with identifying key risk exposures,” Supply Chain Dive, 10 October 2022.
[7] Sumit Gupta, “How to Manage Supply Chain Risk,” Scoop Byte, 4 October 2022.