With expanding globalisation and cross border trades, the supply chain has been confronted with complexity and insecurity. Supply chain risk management has become an important tool for managing the risks in the supply chain. The risks manifest in the form of climate risk, demand risk, operational risk, regulatory risk and supply risk to name a few. In this post, Professor Omera Khan, accomplished academician, researcher and professor examines the risks and challenges to present day businesses and how to avert or minimise these.
One of the biggest changes to the business landscape over the last two decades or so has been the significant increase in the level of risk confronting supply chains. We have moved from a world of relative stability, and hence predictability, to an environment that is characterised by turbulence and uncertainty with a consequently heightened potential for disruption to business activity.
Supply chains are increasingly being impacted both through external events such as natural disasters and changes in the geo-political arena as well as through events within the supply chain. Whilst natural disasters, which seemingly are on the increase, attract much attention often the greatest risk to business continuity is systemic, the risk is embedded in the supply chain because of managerial decisions concerning the design of the supply/demand network.
Coping with disruptions
Disruptions to supply chains, whether they are natural, accidental or intentional, are increasingly distorting supply chain performance. Given that such disruptions are unlikely to decrease in the short term, supply chain risk mitigating solutions will play an increasingly significant role in the management of supply chains.
Klaus Schwab Founder and Chairman of the World Economic Forum states that ‘the acceleration of innovation and the velocity of disruption are hard to comprehend or anticipate and these drivers constitute a source of constant surprise even for the best connected and most well informed’.
The British Standards Institute (BSI) defines ‘A supply chain security management system combines traditional supply chain management practices with security measures – allowing you to protect your business against threats such as piracy, terrorism and theft. Important aspects of security management include validating supplier credentials, screening cargo and securing cargo transit’.
Network complexities and challenges
As supply chains are global complex networks, companies face considerable challenges to understand security risks and to keep pace in an increasingly volatile world.
According to the World Economic Forum’s (the global risks report 2018), systemic risks continue to grow affecting our economic, environmental and technological systems.
Given this reality, the question revolves around how organisations can best prepare for inevitable disruptions, such as geopolitical trade wars, enabling technologies, shifting centres of gravity in the supply chain, rise of the on-demand / omni-channel consumer. However, the biggest risk is ignoring the risk itself and not recognising that change is inevitable.
One could argue that the uncertainty of the current geopolitical situation is a cause for heightened security risk around the globe today. This adds to the contagion and the cascading of risks to other areas thereby increasing the vulnerability of global supply chains. The trend towards nationalism and populism will have an impact on global trade.
One scenario is that with an increase in protectionism, cost will rise, living standards will fall and global growth stalls or falls. Potentially this will reduce the demand for global shipping and transport and freight rates fall because of over-capacity and profitability declines – in short a downward vicious spiral.
Trade policy changes
Trade policy changes were the most commonly cited risk in all regions, in both developed and emerging economies according to a McKinsey’s mid-year global economic snapshot. The report describes expectations of for trade activities are declining and trade related risks are threatening growth (McKinsey & Company, 2018).
It is thus fair to say that tensions over trade and globalisation are not only accelerating disruptions but are creating new risks for businesses, and it is important for managers to navigate a route through these more uncertain and turbulent times.
As the McKinsey highlights ‘growth is shifting, disruption is accelerating and societal tensions are rising, confronting these dynamics can help leaders craft a better strategy and ultimately forge a brighter future’.
Today’s complex logistics networks of storage and intermodal transport face security risks both physically and virtually. The growth of and use of information technologies has ironically exposed supply chains to increased vulnerabilities, and security risks entering any part of that chain can affect many parts of the supply chain operations, from goods in transit to supply chain partners that have different standards or priorities when it comes to security.
Multiple concerns
Transport networks, cargo diversion, hijacking and piracy are all concerns and so are cyber threats as mentioned earlier. Shared IT platforms mean that criminals can enter any point in the chain.
A point of consideration must also be placed on the displacement of threats, so for example a change in security in one part of the supply chain may affect other parts. Improving warehousing security, for example could mean that thieves have shifted their attention to goods in transit.
Ultimately the design of supply networks should be at the forefront of any CEO when charting a new route through these turbulent times. It is possible that security risks when identified early can be mitigated and designed out of the supply chain.
Strong alliances, these could be competitors, a flexible and agile supply network that can be ramped up or down when the need requires it and a dedicated and proactive response system and team that enables a responsive and effective supply chain security system.
(Sources: World Economic Forum (2018) The Global Risk Report. Insight Report 13th Edition McKinsey & Company (June 2018) Economic Conditions Snapshot, June 2018: McKinsey Global Survey Results)
