You can’t run from global supply-chain risks – they defy borders and time zones to disrupt at seemingly the worst possible moments. But you can manage risk and build resilience across your value chain to minimize impact and business continuity.
Supply-chain disruptions over the past five years have highlighted the fragility of the global economic system – not just regional markets. Despite intensified interest in reshoring or nearshoring global manufacturing operations from low-cost, high-risk countries, such as China and India, we’re witnessing reshoring’s limitations as a primary risk management strategy.
Just when you think you’re out, risk pulls you back in.
To thrive in an environment that has more permacrisis and less permafrost, business leaders need to get comfortable with being uncomfortable. There are no easy answers or fast fixes.
Global Events Hitting Home
Some disruptions, such as a deep freeze in the American Southwest and increased flooding, are the result of climate change. Others, such as the Ever Given blockage of the Suez Canal and Baltimore’s Francis Scott Key Bridge collapse, are freak accidents. Reshoring wouldn’t have helped much.
Aravo’s Dean Alms: “Time-tested best practices.”
Major geopolitical events, such as Russia’s invasion of Ukraine and Hamas’ attack on Israel, can be so disruptive to global trade and logistics that the effects can be felt far from the front lines. Cybercrime and warfare know no boundaries, either, and are taking down vulnerable organizations – or taking them to the cleaners.
Rather than flee high-risk regions and markets, which can be a costly and lengthy process, leaders need to accept these risks as an enduring part of the wider business environment and adopt a holistic supply chain risk management (SCRM) strategy. Sure, re- or nearshoring can be a part of the strategy, but it’s not the only solution. The payoff is long and uncertain.
Think Globally, Act Locally
Meanwhile, business leaders should look to alter their SCRM strategies to mitigate the impacts of future disruptions. It’s a sound business strategy and a prudent measure to take whether your long-term SCRM strategy involves fleeing China or India.
For example, assess your direct and indirect procurement categories and determine which ones are most at risk from supply chain shocks. Are there at-risk commodities, materials, parts or products you could swap for lower-risk alternatives? They may be higher-cost, but if they can keep you running during a high-impact risk event, it would likely be worth the added cost.
Also, strategic suppliers (those that produce unique parts or products that few suppliers produce) in high-risk geographies or markets diversify and add depth to your supplier base with businesses in other locations. Build out supplier rosters with partners that can fill gaps created during risk events and local disruptions. Leaning on lower-risk, or simply more, suppliers can help scale operations to expand market share.
Another strategy: Collaborate with suppliers, don’t abandon them. They’re closer to risk factors, market conditions and innovation. Suppliers can not only help you uncover risk conditions and share intelligence, but they can also help solve common product and logistical challenges. If there are environmental, labor, quality or safety issues, you can leverage your business relationship to improve conditions, thereby mitigating business risks, complying with applicable laws and continuing to support the local labor force.
Risk Management Technologies
Conducting commodity risk assessments, building supplier redundancy and closely collaborating with suppliers are all best practices and strategies for driving supply-chain resilience. There are also tech-based solutions to help companies drive SCRM and third-party risk management (TPRM), which are critical for overall business resilience. These include, but are certainly not limited to:
- Supplier and Third-Party Due Diligence Tools: Automated tools can help to investigate suppliers and third-party logistics providers for financial, operational and reputational risk and establish trust early in the business relationship. This should be done before you put pen to paper and codify your relationship. It’s easier to stick with the suppliers you have if you’ve done the necessary homework beforehand.
- Supply Chain Risk Intelligence Tools: Platforms that automatically collect, centralize and normalize enterprise, supplier, and third-party risk intelligence give procurement and supply-chain teams enhanced visibility into the end-to-end value chain. Greater visibility enables business leaders to see “the big picture” – how a risk event in the Red Sea could potentially impact domestic business operations.
- Commodity, Part, and Product Traceability: Tech-based solutions that enable end-to-end traceability for commodities, parts or products (e.g., pharmaceutical products) can help procurement and supply-chain management teams gain transparency needed to mitigate supplier and third-party risk and comply with laws and regulations. They’re mainstays of heavily regulated industries and, apart from compliance, can help to establish a product’s point of origin to help guarantee its ethical or sustainable quality.
- Continuous Supply Chain Monitoring: Digital supply-chain intelligence monitoring enables you to watch strategic suppliers, transit zones and regions for risk events that could impact your operations. Having suppliers, third parties, logistics providers and customers worldwide means you must have solutions that are “always on - always watching,” so that you don’t have to be. Pre-set alerting and reporting ensure that you receive early warning and can deploy contingency plans if needed.
A balanced approach to SCRM and TPRM involves implementing time-tested best practices, strategies and technologies that will help mitigate risks in the short term while a long-term risk reduction strategy is planned and executed. Even if a long-term supply-chain risk management strategy involves decoupling from low-cost, high-risk countries, it’s a multi-year process that does nothing to solve immediate and near-term business risks.
Think big by imagining what you’d like your company’s supply chain and extended enterprise to look like in five to 10 years. What markets are you serving, and with what products, services or solutions? How will that affect direct and indirect procurement needs? Will you need to contract, expand or relocate your supplier base?
Start small by addressing immediate operational needs and supply-chain risks, including current or emerging threats to your extended enterprise, and how you need to adjust your risk management strategies and program to cover additional suppliers/third parties and/or additional risk categories.
Finally, grow fast by implementing the strategies and technologies needed to equip your SCRM and TPRM programs at scale to quickly and adequately meet the needs of your business operations. Don’t wait for a grand business transformation to fortify your supplier base. Start now and do it fast.
As chief product officer of third-party-management solutions company Aravo, Dean Alms oversees product strategy, product management, product marketing and product design. Past positions included chief product officer at Socrates.ai, where he played an instrumental role in building an AI-leveraging employee experience product; head of product strategy for third-party support services provider Rimini Street; and vice president of product management at PeopleSoft.
Topics: Resilience
