We all have emotions that guide us through life. Happiness, sadness, joy, and anger - just to name a few - come and go and we do our best to keep those emotions in check, especially when it comes to business and being a professional. In today’s increasingly volatile and unpredictable world fraught with trade wars, natural disasters, and political instability, it's normal for fear to even creep up every once in awhile.
And whether we like it or not, fear is what has the potential to teach procurement and supply chain professionals a thing or two about risk management. Of course, I’m not suggesting it’s beneficial to live in a perpetual state of supply chain terror, but procurement professionals must recognize the situation at hand and make risk management a priority.
Here are six supply chain risks and my advice on how to effectively mitigate them.
Risk #1 - The impact of trade wars and economic changes
Although the U.S. and China have recently settled upon a preliminary trade agreement, ongoing trade tensions are unlikely to be resolved any time soon. Tariffs apply to $550 billion of goods, resulting in increased prices that impact the supply chain and dent revenues, forcing businesses to either absorb the extra cost or pass it on to their customers.
The impact of Brexit on the U.K. and European trade will also affect U.S. supply chains, although the extent of this is yet to be realized.
Stay up to date on the latest political and economic changes impacting your supply chain. For example, how will the two possible outcomes of the upcoming presidential election impact trade, global alliance, and treaties?
When it comes to issues such as Brexit, businesses should be working to minimize their exposure. Explore the potential impact of import delays, evaluate alternate supply routes, and consider relocating manufacturing facilities.
Risk #2 – Supply shortages
Shortages of key materials and components can severely disrupt supply chains. In recent years, for example, there has been a shortage in NAND flash memory, a component used in SSDs (solid-state drives). When Apple started using this component, many suppliers shifted their supply away from existing buyers.
Another area of concern is the supply of minerals used in lithium-ion batteries. It’s predicted that the demand for lithium will quadruple by 2035 as the EV market continues to boom.
Plan early and plan well using the principles of demand management to anticipate when and where there will be shortages of particular components. This might include increasing the supply base for critical components and building better relationships with suppliers to ensure they don’t decommit when another buyer (like Apple) comes along.
Ideally, professionals will ensure all contracts include clauses to protect themselves against this outcome. When it comes to the depletion of natural resources, procurement should search for viable, long-term and sustainable alternatives.
Risk #3 – Natural disasters and climate change
In 2019, global losses as a result of natural disasters hit $150 billion. Earthquakes, floods, and fires have a devastating impact on supply chains. The impact of Puerto Rican hurricanes in 2017 destroyed Pfizer’s facilities and cost the company $195 million in damages. Toyota closed its Puerto Rican factories in 2018 due to typhoon related power failures. In 2018, low water levels disrupted inland shipping, impacting European supply chains.
Shockingly, 47% of shippers don’t have a backup plan for ensuring continuity following a natural disaster. It’s crucial to develop a robust strategy, which includes contingency plans, evaluating high-risk zones and pinpointing the most crucial and indispensable links within your supply chain. Building a diverse supplier network and assessing different available carrier routes will make your organization more resilient after a disaster.
Risk #4 – Poor quality control
Insufficient quality control can have a lasting effect on a business, resulting in damaged brand reputation, expensive product recalls and a loss of customers. No one could forget the exploding Samsung Galaxy Note7 phone in 2016, which resulted in a recall of 2.5 million units and cost the company $5.3 billion.
Implementing effective quality control measures can be costly but the pay-off, in the form of increased efficiency, customer loyalty, and greater profits, makes it worthwhile. Evaluate potential suppliers by the robustness of their quality control processes.
Risk #5 – Cybersecurity
In 2019, 78% of U.S. organizations fell victim to a cyberattack, costing the economy between $57 billion and $109 billion. A cyberattack such as WannaCry has the potential to bring down your entire supply chain network.
As well as implementing stringent cybersecurity measures within your own business, it’s important to make sure your suppliers are following suit. Limit access to your systems only to those absolutely necessary and invest in good systems and good people to keep you cyber-safe.
Experiencing supply chain woes? There’s safety in numbers. Get in touch with Una to discuss the power of bulk purchasing and the benefits of joining and Group Purchasing Organization to help navigate supply chain uncertainty.