Risk Management: Building resilient supply chains in a risky world

There was a time when supply chain risk could generally be organized into several different buckets. Suppliers failed, factory issues created production delays, natural disasters shut down operations and the occasional “black swan” event impacted companies’ ability to fulfill orders on time.

These weren’t the only risks, of course, but when Murphy’s Law kicked in there was a good chance that the problem could be traced back to one of these buckets.

The pandemic changed all of that, and even in the post-pandemic world it seems that supply chain risk is now lurking around every corner. And it now comes in many different shapes and sizes, with cybersecurity, ESG, labor shortages, geopolitical turmoil, economic fluctuations, quality issues and evolving customer preferences being just some of the key risk areas that companies are dealing with right now.

According to Everstream Analytics’ 2024 Supply Chain Risk Report, companies are most concerned about extreme weather events, followed by new environmental regulations and new protectionist measures (particularly between the United States and China).

According to the report, supply chain leaders are also worried about escalating tensions overseas and agricultural commodity shortages. Attacks on ships in the Red Sea, drought conditions in the Panama Canal, and emerging cybersecurity concerns also became top-priority concerns for supply chain and logistics managers over the past months.

Michael Taelman, advisory manager, performance improvement at Crowe, LLP, is seeing an overall higher level of awareness of supply chain risk both at the board and leadership level.

“Generally speaking, businesses are highly aware of potential supply chain volatility,” says Taelman, who points to the current geopolitical climate as one area of particular interest. “Contemporary geopolitical issues are reigniting the need to manage enterprise-level supply chain risks from the very top-down, and to make changes as situations become volatile.”

Risk on everyone’s radar

Suzie Petrusic, Ph.D., senior director analyst and risk expert in Gartner’s Supply Chain Practice, has been working closely with chief supply chain officers (CSCOs) and their teams on supply chain risk management in this VUCA (volatility, uncertainty, complexity and ambiguity) environment.

Petrusic has an inside track both on the potential threats and the available solutions, and says that for the most part supply chain leaders are “increasingly aware” of the need for more systematic, cost-effective risk management approaches.

“There was a period of time between 2019 and 2023 where supply chains were basically whiplashed and dealing with one thing after another. There was a lot of chasing around and trying to figure things out,” Petrusic says. “Fast-forward to 2023 and 2024 and CSCOs are now ready to move away from that reactive posture and take control of the situation.”

As part of that mission, CSCOs are taking proactive and strategic steps to manage a potentially more volatile environment going forward. Along with the current issues mentioned earlier, Petrusic says companies are keeping an eye on emerging sustainability legislation, knowing that those changes can affect the way they do business. They’re also concerned about resource constraints—both raw materials and natural resources like electricity, gas, and water—and ESG issues like emissions and packaging waste.

Deciphering disruption from the noise

While the “urgent supply-driven market” that took hold during the pandemic may now be in the rearview mirror, supply chains aren’t exactly in the clear yet. Companies are finding some relief in technology, which has advanced along with the emergence of new supply chain risks.

For example, visibility platforms have gained in popularity for the real-time insights that they provide into the movement and status of goods across the supply chain journey. Companies are also using real-time risk monitoring platforms to identify potential vulnerabilities, predict delays and develop appropriate responses to those potential problems.

Petrusic says some organizations are using proactive strategies to spot and address supplier issues before the problems spiral into major challenges. In some cases, these proactive steps can be as simple as sending an email to a supplier to ask how a specific, delayed order is being addressed.

Often, procurement departments drive these discussions, knowing that this functional area can often spot issues well in advance (e.g., inability to fulfill an order, supplier sourcing difficulties, supplier financial issues, etc.).

Companies also expect digital technology to help determine the best possible responses to those issues. For example, they want their risk management software to pinpoint the best response based on the top key performance indicators (KPIs) that the company optimizes for.

“If they optimize for cost and service, they want the software to give them the best option for those two KPIs, versus delivery speed or low sustainability outcomes,” says Petrusic.

“We think of resilience as the fuel, agility as the muscle and visibility as the knowledge,” says Petrusic, who adds that many companies do have the visibility piece; they can see disruptions early. But many others “can’t decipher the disruption from
the noise.”

According to Petrusic, for organizations who can see the signal, they generally need help figuring out what to do with the related data. “That ‘what should I do about it?’ is the Ph.D.-level use of technology for supply chain risk response.”

Take your pick

Taelman says companies are placing more emphasis on labor and demand management, both of which have become increasingly difficult in the modern business environment.

Warehouse and transportation labor is difficult to find and retain, for example, and creating accurate forecasts has turned into a bit of a crapshoot for many companies. Organizations are increasingly turning to technology for help identifying and addressing these issues.

For example, Taelman says companies like Anaplan and Gartner, Inc., help companies “keep a pulse” on supply chain risk data by paying close attention to what’s going on in the world at any given point.

“They then farm that data and give it some dimension,” says Taelman. “So, if a hurricane hit the coast, for example, companies that have the data know that 80% of their shipment volume is not going through seaport A, and that they can solve the problem by using seaport B.”

When assessing technology platforms designed to identify or mitigate risk, companies should consider the level of complexity of those solutions. Ask yourself just how deep you want those platforms to look into your business, says Taelman, understanding that some of the simpler, cloud-based platforms don’t necessarily have to be embedded into your operations. “You can start by simply getting a feed of shipment data and analyzing it yourself,” he says.

At the other end of the spectrum are more complex risk management platforms that embed with enterprise resource planning (ERP) systems and other applications. You feed your data into the systems and get recommendations based on your company’s internal data. “It takes more time to embed the platforms into your businesses, but ultimately the answers you get will be much richer and specific,” says Taelman.

Focus on what’s important

Looking ahead, Shashank Mane, go-to market leader, manufacturing at Capgemini, says shippers should brace themselves for more supply chain disruption as the year progresses.

At press time, for example, the number of ships transiting the Panama Canal was about to drop to 24 per day—versus a previous 36. These events can quickly create capacity constraints that lead to higher transportation costs. This, in turn, puts additional cost pressures on supply chains.

Similar scenarios are playing out in the Red Sea, which usually hosts about 30% of the world’s ocean container traffic. The recent attacks on ships in the region have made an impact on a wide range of goods and put additional pressure on costs and lead times.

“These are just a few of the newer risks that are popping up and introducing new challenges,” says Mane. “So while things looked like they were getting better post-COVID, it now looks like we’re taking a bit of a U-turn and having to deal with disruptions and price increases again.”

Be ready

When developing supply chain risk mitigation strategies, Petrusic tells companies to focus on what they value most. That way you’ll always know what you care about most, and you’ll be able to shield it from potential harm and mitigate issues as they emerge.

“If you don’t care about something, there is no risk,” says Petrusic. “The best starting point is to identify what you value and understand the potential risk, so that you can then prioritize your risk management around those pillars.”

And be sure to involve a broad set of stakeholders in these exercises, knowing that logistics, supply chain and transportation aren’t the only functional areas that will be impacted when the risk emerges. “This doesn’t work in silos,” says Petrusic. “You need good cross-functional alignment across all of your internal stakeholders.”