Supply chain risks and disruptions - can they be avoided?

By now, most of us will be aware of the impacts of the global supply chain disruption, becoming all too familiar with supply chain risks caused by shortages, inflation, war, pandemic, factory closures, and goods waiting at ports to be unloaded, contributing to these continued disruptions.

These impacts are severe enough, but another more-hidden concern lurks just beneath the surface: the effect of supply chain interoperability and the ability to share data. 

Supply chain interoperability will not eradicate all the supply chain risks, but it can aid in minimising supply chain disruption. Supply chain stakeholders can harness to boost communication without compromising privacy along all steps of the supply chain journey.

What is supply chain risk?

Supply chain risks include exposures, threats, and vulnerabilities associated with the products and services traversing the supply chain.

Supply chain risks can cause general economic disruption and essential shortages of commodities, which, in turn, can drive aggressive national behaviour, protectionism and international instability. 

Indeed, supply chains' very interdependence can create vulnerabilities. So a systematic and standardising effort, cutting across governments, businesses and agencies in private and public sectors, is one option for reducing the impact of supply chain vulnerabilities. 

What supply chain disruptions are causing the most risks?

Dispersed supply chains develop because actors find it economically advantageous to seek the least expensive and most-productive sources of supply. These dispersed chains form for good reasons, but they create interdependencies between several parties. Due to their interdependence, others are inevitably impacted if one supply chain sector fails.

Government and political changes

Political instability is a concern for the impact on global supply chains. In Western Europe, Brexit is but one instance of political instability. The UK's withdrawal from the European Union created volatility and harmed trade. Other examples include the Escalating trade disputes between the US and China and Japan and South Korea. 

Changing political and governmental environments in countries worldwide will increase trade risk. Organisations should adopt strict operation compliance to ensure they do not fall foul of such change in the face of new regulations. Suppliers should seek carriers and legal entities that operate outside of governmental control to handle trade needs.

Economic instability

Economic instability represents another supply chain risk. Should prominent supply chain stakeholders like shipping companies or freight carriers go bankrupt, they can impact global trade because previously relied upon parties are no longer present. 

Cargo is seized and unable to be unloaded, and subsequent supply chain steps are delayed or, worse, stopped. For example, the bankruptcy of Hanjin Shipping caused a 3 per cent gap in the global shipping fleets - resulting in billions of dollars of cargo not being delivered.

Social and environmental risks

Social and environmental supply chain risks can harm global trade or those who do not adopt environmental and social responsibility within their organisations. 

As more regulation is passed governing the environment, supply chain businesses will come under greater scrutiny. For instance, requesting information on removing chemicals used during the manufacturing process or if a supplier abides by the no child labour law. Failure to abide could see a business being forcibly closed, creating another gap in the supply chain journey.

Extreme weather events

Extreme weather harms global supply chains because tropical storms can cause severe damage to ocean traversing freight ships. With the increase in global climate change, these storms are only increasing. They are no longer considered a Force Majeure event. 

Suppliers must re-evaluate their ocean routes to anticipate the impacts of their shipping operations, from either re-routing or increasing the operational capacity to minimise the effects of delays.

National disasters

National disasters include natural and human-made disasters unrelated to weather-induced events. For instance, earthquakes, virus pandemics and famine are some examples that impact global trade. For example, the earthquake and subsequent tsunami that struck Japan in 2011 caused significant supply chain disruptions. 

And then Covid-19 emerged. The coronavirus pandemic revealed many ignored vulnerabilities in global supply chains, causing leading companies to rethink their supply chain strategies to minimise similar future disruption by adopting more digitalisation and cloud technology in their supply chain infrastructure.

Rising prices

Sudden increases in prices can be devastating to a highly exposed supply chain. Inflation can cause a fall in demand for goods carried through supply chains, causing potential job losses and lost revenues for businesses. 

Alternatively, deflation causes an increase in demand and, thus, strains on supply chains to meet that demand. And then, there is the cost of commodities that lubricate the supply chain machine, namely oil for transportation. One way for companies to avoid price risks to supply chains is to build up supplies by setting longer-term contracts that can reduce the impact of future prices.

Transportation failing

From shipping to last-mile deliveries, transportation risks significantly disrupt supply chains. When delivery fails to materialise, the logistics and purchasing teams are the first to be blamed. 

Even dependable carriers with robust networks will ultimately suffer a setback related to transportation, whether broken down trucks or lack of drivers to deliver the goods are causing price increases for both supply chain operators and consumers. Companies should focus on driver retention and technological initiatives to avoid transportation risks.

Supplier consistency

Only 45 per cent of suppliers can continue operating after a disaster. Disruption in supplier consistency may result from any supply chain risk occurring. Furthermore, Supplier consistency applies to manufacturers, too, should they fail to seek raw materials to manufacture their goods consistently.

Procurement departments must diversify their supplier network to ensure that supplier consistently does not impact their product production. The same should be said for diversifying transportation networks to ensure they can deliver what they promised, no matter the supply chain risk. 

Product quality

Quality failure can be mundane (for instance, packaging cardboard becomes wet and floppy). Still, the consequences can be severe (the packaging cannot be loaded into machinery and the entire assembly line halts). Quality risk management is replete with various methodologies that aim to bring scientific certainty to the vagaries of mass production.

War and conflict

If the COVID-19 pandemic crippled the global supply chain, the Russian invasion of Ukraine knocked it to its knees. The invasion of Ukraine has created barriers in the market, disrupting the movement of commodities like auto parts, semiconductors, oil and grain. 

Most nations from Europe, North America and Africa have called for policies to remove supply chain disruptions and increase resilience because of the extensive economic impact of the war.

No organisation can afford to underestimate the significance of any war, even if it doesn't seem to directly affect them now. Companies should assess and prioritise risks across the value chain, upgrading risk mitigation strategies and enhancing supplier base traceability. 

Cyber Attacks

Cyber-attacks are increasing, intending to bring down entire supply chain networks, forcing costs to increase as companies move to improve their security systems. Cyber-attacks occur from malicious actors, whether governments are trying to undermine other countries, companies trying to steal others' business secrets or just plain hackers looking to create mischief. 

Organisations must ensure they have security systems with solid defences against cyber attacks. Using blockchain technology is one such robust solution to protect against data leaks as it has increased security thanks to its immutable records.

Integration and connectivity

Global supply chain risks exist within the connectivity of today's systems. Although businesses and organisations can integrate systems through open-source software, integrating and modifying systems increase data risks. 

Each integration results in added costs for new upgrades, and diversely integrated systems could lead to supply chain data silos and disruptions. 

Legal

When a supplier does something illegal, organisations can often find themselves liable. For instance, in the UK Bribery Act, where a supplier has committed corruption in its business, its clients may be subject to a substantial financial penalty. Ensuring contracts are robust enough to include provisions to protect the buying company from the most egregious examples of criminality is essential but only a partial answer. 

Training suppliers and purchasing managers to be aware of the law and take a zero-tolerance attitude to illegal actions is the only way to ensure that prosecutions are avoided.

Reputation

A company's reputation is one of the least understood areas of risk relating to practices that the general public believes businesses should be conducting. 

Brands are tarnished when organisations have been viewed to contravene a moral code, if not a legal obligation. There is a fine line between unethical behaviour and criminality. 

Other examples might relate to environmental protection, ethical treatment of staff and competitive practices. Alongside this, new factors may affect a brand's reputation, such as an organisation's perceived level of 'fair' tax payments - consider Starbucks and Amazon as two players who have fallen foul of government tax departments over the amount of 'fair tax' paid.

Data integrity, accuracy and privacy

Data integrity refers to the quality, accuracy and privacy of data in supply chains. Inaccurate data could leave supply chain parties with reduced profitability and open doors to failure. Also, more companies isolate their data from others, increasing the risk of miscommunication and incorrect data. Organisations can strengthen data integrity by sharing only what is required by standardising a supply chain protocol with reputable supply chain partners.

Standardising their data using a supply chain messaging protocol can ensure increased data operability. Using blockchain-based technologies to eliminate erroneous changes in data retroactively. Supply chain stakeholders from manufacturers, freight, retail, shipping and last-mile delivery who switch to collaborating with data can improve data integrity and decrease supply chain disruption.

The challenge to avoiding supply chain risks and disruptions 

Supply chain risks and disruptions are a fact of life. It is improbable to eradicate it entirely. With supply chains interdependent, what happens in one sector will inevitably impact the other. 

However, supply chain stakeholders should embrace interdependence - if supply chain parties acknowledge that to avoid supply chain disruption is not to insulate themselves from others but to integrate with a standardised protocol, thus ensuring better data sharing so that when supply chain risks occur, it is easier to manage its impact. Even external shocks—such as natural disasters—could rapidly become endurable if interdependence is embraced.

The critical point is that those supply chain actors, whilst fearing losing a market edge, can still have privacy within a public organisational construct - an open supply chain infrastructure. Harder to manipulate data from malicious actors yet entirely able to be integrated with various systems and platforms globally. 

It's what we're building at Supplain so supply chains can operate more smoothly.