2020 signaled a fundamental shift in how we manage global supply chains. From IMO 2020 to COVID-19, these risks and crises showcase the need to understand what global supply chain risks are, how to identify these risks, and how to create resilient global supply chains.
Global supply chain management is the trans-national management of the flow of products and services from suppliers to buyers through networks of integrated third-party logistics services. This international network matters because effective global supply chain management can lead to greater profitability with minimized waste.
However, when interruptions to the global supply chain management occur, risk management is essential in determining the problem, how to resolve it, and potentially, how to prevent it from happening again or to at least minimize it in the future.
What are the Risks in Global Supply Chain Management?
Risks in the global supply chain range widely. This is because the interconnectivity of global supply chains makes them very susceptible to some of the following risks:
- Supply risks
- Operational risks
- Demand risks
- Macroeconomic risks
- Policy risks
- Competitive risks
- Resource risks
It’s also worth noting that these risks generally overlap and don’t often occur in isolation.
Examples of Risks to Global Supply Chain Management in 2020
There are numerous risks to the global supply chain, and while many can be planned for, there are still many risks to global trade that present unique challenges.
1. Geopolitical Risks
From the 1973 Oil Crisis to the China-US trade war, geopolitical issues have long affected global trade and often led to downturns in the volume of trans-national trade. For example, risks presented by Brexit have led to multinationals such as Panasonic, Sony, and Schaeffler to move their operations outside of the UK, citing the country’s eventual departure from the EU as a concern for their operations.
Likewise, the China-US trade war has pushed many American companies to diversify or outright move their supply chain from China to Vietnam or the US. Such pushes are being done to avoid tariffs levied by the US on Chinese imports.
2. Extreme Weather Risks
Extreme weather conditions such as hurricanes and typhoons are well-known to be a disruptive force in supply chain management. When Hurricane Harvey and Irma hit the United States in 2017, it was estimated that 67% of supply chain managers expected prices for input materials to be negatively affected for three months as a result.
Typhoons in East Asia also wreak havoc on supply chains. 62% of Japanese businesses in a survey said their recovery from natural disasters that occurred between 2017-2019 took on average a week, with 32% stating it took a month.
With hurricanes costing up to $100 billion in damages, and their frequency and strength growing due to climate change, we could see a need for more flexibility with supply chains due to extreme weather events in the future.
3. Economic Risks
From the Great Depression to fears of a global recession due to COVID-19, the cyclical nature of economic downturns is something all businesses need to be prepared for. When it comes to recessions, it’s fair to say that you can expect lower stock turnover rates, reduced access to credit and financing, increased tariffs on imports, and even longer delivery times.
During the Global Financial Crisis in 2009, many supply chains were struck hard by the liquidity problem in the global capital markets. Buyers and sellers found that they could not rely on banks and security markets for working capital to finance their operations.
4. Global Pandemics
Since January 2020, the world gradually entered into lockdown, with no country or region being unaffected by COVID-19. The virus was unprecedented, and although ocean shipping has remained relatively unaffected, the world economy is set to slow down to a GDP growth rate of between 0.5 to 1.5% depending on how the pandemic plays out in the rest of 2020.
An article in the Harvard Business Review explains how businesses that mapped their supply chain have effectively managed the risks presented by the COVID-19 pandemic. These businesses managed risk in their supply chains as they received information on disruptions in minutes, not days, and didn't need to scramble to ensure their operations ran smoothly.
We at BlueX have pushed for transparency in the global supply chain with access to ocean shipping data to ensure cargo is moved efficiently in all supply chains through our Freight Commerce Platform.
In 2017, Maersk, one of the world’s largest ocean freight carriers, was struck by a cyberattack that cost the company up to $300 million. The large ocean carrier was able to ensure 95% of their shipments were relatively unaffected by the cyberattacks.
However, this incident did showcase the need for greater cybersecurity in supply chains. Currently, the problem with cybersecurity in supply chains is that members in the chain don’t have consolidated security protocols. Added to this, the level of expertise between partners in supply chains may differ greatly, leaving even the most protected member vulnerable to attacks. Without appropriate training and standardized cybersecurity criteria, cyberattacks will continue to pose a risk to global supply chain managers.
Once you understand what risks can affect your global supply chain, you can identify them, and create a resilient supply chain through mitigating strategies.
According to McKinsey, these four steps for identifying risks to global supply chain management can help you discover disruptions and how to mitigate them both in the present and future, and include:
- Identifying Risk - Find risks that may disrupt your company’s supply chain
- Assessing High-impact Risks - Decide if there is a likelihood the risk could impact your business
- Developing Mitigation Strategies - Invest in strategies to mitigate the effect of high-impact risks to your company
- Integrating Risk Management - Incorporating risk management into your business decisions and company culture
Likewise, risks, according to McKinsey, can also present themselves differently depending on whether they are unexpected and manageable. These types of risks include:
- Manageable Surprises - Difficult to anticipate, but are manageable
- Black Swans - Both difficult to anticipate and manage
- Brewing Storms - Can be anticipated, but difficult to manage
- Business Challenges - These risks can be anticipated and are easy to manage
Your mitigation strategy and how integrated risk management is to your business culture could dictate whether or not you face a risk that is a manageable surprise or a black swan.
Depending on your business and position in the global supply chain, you will need to mitigate risk differently. We at BlueX offer shippers in the freight industry the capability to view their operations with greater transparency through our digitalized Freight Commerce Platform.
Learn more about how you can adopt ocean freight digitalization through Evergreen Line's online booking platform that's powered by BlueX here to help reduce your risk while shipping with guaranteed space.