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Most of us — if we’re not para-jumping off mountaintops or surfing 60-foot waves — spend our lives avoiding risk. Businesses are no different. Investors, fixated on quarter-to-quarter profit growth, are reluctant to dedicate precious capital to projects with questionable short-term value. So executives tend to play it safe, and run from risk. The trouble is, risk these days has a funny way of finding them.
Risk can’t be avoided, but it can be managed. In some cases, it can even enhance a company’s competitive stature, provided the right steps are taken to prepare for it. In others, companies standing on the proverbial burning platform — whether that’s a failed supplier, outdated information system or a dramatic and unexpected shift in demand — have no choice but to make the leap.
Step one is understanding what those risks are. So, as we venture into 2024, what are the biggest challenges that threaten businesses generally, and supply chains specifically? With the help of Bindiya Vakil, chief executive officer and co-founder of Resilinc, a specialist in supply chain risk management, we present the five megatrends that are most likely to impact global business in the coming year.
Geopolitics. Two years on, Russia’s invasion of Ukraine continues to have a severe impact on global affairs. (Not to mention, of course, the innocent citizens who are trapped in the battlefield.) The more recent war between Israel and Hamas only adds to the carnage, as well as threatening one of the world’s most important shipping lanes.
On the international trade side, the big issue continues to be the fractious relationship between the U.S. and China. The Biden Administration’s recent action to restrict the sale to China of advanced semiconductors, and China in turn limiting Western access to key minerals for high-tech production, promise to determine “how supply chains are going to be shaped in the future,” Vakil says. As manufacturers seek to lessen their dependence on production in China, tensions are likely to keep ramping up.
Climate change. It’s affecting every aspect of business — indeed, all life on the planet — but Vakil especially sees global warming as restricting access to water and power. Drought, which is becoming increasingly common around the world, starves factories of hydroelectric power and results in widescale blackouts that disrupt production. We’re already seeing that happen in Taiwan, the world’s center of high-end microprocessor supply, and it’s sure to affect plans to construct silicon wafer factories in arid Arizona and Texas, where rainfall can be scarce in the best of times.
Whether it’s drought, flooding, fire or any number of other natural disasters, companies must have complete knowledge of where their suppliers are located around the world, and be prepared at any time to implement alternative sourcing schemes in response to a weather-related disruption, Vakil says.
Cyberattacks. They were up by 49% in 2022, and 62% in 2023, Vakil says. Many smaller companies that were the victims of ransomware were forced out of business because they couldn’t afford the payoff. And attacks are growing ever more sophisticated, even against the world’s largest businesses. Witness the one on Toyota in late 2023, which exposed sensitive customer information and forced the temporary shutdown of a plant, affecting 5% of total output.
Cyberattacks used to be seen solely as an IT issue, solvable with internal software, but they’re equally a concern of procurement today. That said, only 15% to 20% of procurement organizations are focusing on the cybersecurity of their raw material sourcing, Vakil says. Time for that part of the business to step up.
ESG. Environmental, social and governance compliance encompasses a vast range of corporate responsibilities, and many businesses are lagging in making progress on all three fronts. New regulations in Germany, the United Kingdom and the U.S., among others, are threatening the continuity of supply chains that fail to meet tough standards on carbon emissions, human rights and good governance. ESG concerns are forcing companies to map their global supply chains through multiple tiers of suppliers. You say you didn’t know that your product was being made by some sub-sub-supplier with an atrocious human rights record? Deniability is no excuse.
Labor. Not every job in supply chain can be fully automated, Vakil points out. At some point, a human has to touch a package that’s set for delivery. Yet Western nations, along with Japan, are facing an aging workforce, and younger people aren’t stepping up to replenish it. Factory and warehouse jobs are far from being their first choice of career. So even with automation in the picture, how are we going to staff all those new factories that are needed to shift focus away from China?
With skilled and reliable labor at a premium, and younger supply chain workers less willing to stay in a job they don’t like doing, the balance of power is shifting in the direction of unions. Expect more strikes and worker slowdowns to take place in the coming months.
All of this serves as an introduction to our annual Supply Chain Management Resource Guide. Here, you’ll find dozens of experts from multiple disciplines, writing about the tools that companies will need to address these mega-challenges and the persistent uncertainty that has plagued supply chains over the past few years. As Vakil points out, it’s not about acquiring some shiny piece of technology when budgets permit. Constructive action now is mandatory.
“The last two years saw earnings announcements where CEOs used the term ‘supply chain disruption’ 15 times,” Vakil says. “Customers, investors, shareholders are holding our feet to the fire. And that is how change will happen.”
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