When we talk about supply chain risk management (SCRM), we mean taking a comprehensive approach to risk through-out global supply chains, i.e. identification, analysis and managing of risks.
But, which risks are supply chains exposed to today and what impact do these risks have for organizations?
Globalization, climate change, sustainability and the rise of digital are just a few of the megatrends effecting businesses today. Megatrends are a fact of modern life with increasing economic consequences for everyone.
Figure: Megatrends of our time
The long-term effects of global megatrends on company operations present an immense challenge for supply chains. Purchasing and logistics departments face increasingly complex problems with significant ramifications.
The below overview shows the economic impact of megatrends and the risks they present for supply chain risk management.
Outsourcing and global trade relations make today’s supply chains enormously complex. Companies are more interconnected than ever before and their interdependency is rapidly increasing. As a result supply chains are more vulnerable and fraught with risks.
The digital revolution provides nearly unlimited access to data and the tools analyze it into actionable information. Companies gain a competitive advantage by using technology to e.g. extract risk relevant information from millions of web pages and therefore design more responsive and resilient supply chains.
Global warming and other consequences of climate change are creating unprecedented challenges for companies. Natural disasters bring production to a halt and new environmental regulations present companies with unexpected and costly challenges.
Digital information and social networks create transparency concerning ethical and environment-related actions of business partners. Non-compliance with environmental regulation and human rights violations damages a company’s brand and reputation.
The convergence of globalization and other megatrends continuously increases the impact of supply chain disruption. As a result, transparency in the supply chain combined with proactive risk management provide companies with a significant competitive edge. Companies without a robustly integrated Supply Chain Risk Management risk revenue loss, supply delays and additional costs from supply chain disruptions.
Read about Supply Chain Risk Management as a competitive advantage in the context of global megatrends.
Megatrends impose specific risks with immediate and direct effects on supply chains. Natural disasters, financial instability of suppliers, changes to regulatory standards, unforeseen changes in buying behavior and geopolitical crises are just a few examples of how megatrends disrupt supply chains.
Examples of recent supply chain disruptions companies have been subjected to and the resulting economic consequences include:
In 2011 devastating floods in Thailand resulted in sales losses of $607 million and a reduction in the operating result of $ 225 million for Canon, the world’s largest camera manufacturer. Read this paper by Spend Matters for more information about the impact of natural disasters on global supply chains.
The longest strike in German history by train conductors and the GDL union resulted in economic damages of approximately $750 million euros. For more information on "man-made" supply chain risks please read Spend Matters' paper here.
An explosion at a highly specialized Toyota steel plant in February 2016 led to supply disruptions that required Toyota to scale back global production by 4%. Read this paper by Spend Matters about "man-made" supply chain risks.
Attempts by refugees and migrants to cross the borders between the European mainland and the United Kingdom in 2015 and 2016 caused waiting times of up to 2 hours (Port of Calais), 6 hours (Dover) and 9 hours (Eurotunnel). The transport of production goods was massively delayed as a result. Do you want to learn more about geo-political supply chain risks? Read this paper by Spend Matters.
(Source: http://www.telegraph.co.uk/news/uknews/immigration/11774895/Calais-illigal-immigrants-crisis-Army-on-standby-live.html, http://www.bbc.com/news/world-europe-35393423)
Read our Whitepapers with Spend Matters: Corporate Image & Compliance at Risk: How to Mitigate the Hidden Risks Lurking in your Supply Chain and Supply Chain Risk Briefing: The Most Effective Ways to Mitigate Supplier Financial Risk.
Certain industries are more vulnerable to specific risks than others, but every sector must consider unique regulatory and customer-specific requirements.
Automotive, hi-tech and electronics, production, and medical and pharmaceutical industries are a few of the sectors that are constantly confronted with threats to their supply chains:
Some of these challenges can quickly stretch companies to their limits. Furthermore, the occurrence of risks can seriously impact on a flawless supply chain process. Proactive risk management and a corresponding identification and analysis of objects associated with risks are therefore particularly important.
Risks to the supply chain stretch companies past their limits and one risk event can derail an otherwise flawless supply chain. Proactive risk management combined with identifying and analyzing potential risks is critical to preventing revenue loss and preserving your brand.
Secure your supply chain now!