Supply Chain Risk Universally Declines in May, but Global Vulnerability Remains High

Inaugural report from riskmethods demonstrates a sharp increase in cyber security, financial and labor risks



Boston and Munich, 07.09.2020 - riskmethods, a leader in supply chain risk management, has released the riskmethods 2020 Risk Report: The Year That Changed Everything, which details the top supply chain threats that affected organizations in 2019 and how they evolved during the first half of 2020 due to COVID-19. The inaugural report is the first in an ongoing annual series, aimed to identify trends in risk management from organizations with complex supply chains.

The index reveals that as of this May, there’s been a decline in every type of supply chain risk monitored by riskmethods, signifying a potential turnaround as COVID-19-related lockdown and restrictions begin to lift. However, the percentage of pandemic-related threats in May was still higher than January or February 2020. Similarly, financial distress of suppliers was 105% higher in May than at the beginning of the crisis, signaling there’s more damage to come.

Comparing this year to last, in January – May 2020, there was a 34% increase in the total number of early warnings of supply chain disruption, compared to the same period in 2019. Specifically, from January to May 2020, warning signs for:

  • Disasters at partner sites increased by 151%
  • Disasters at location increased by 100%
  • Instability in key employee positions increased by 46%

“At the beginning of the year, when we began compiling this report on risk, our risk intelligence told a very different story,” said Raimund Rix, Chief Product Officer at riskmethods. “But despite the upheaval and supply chain disruption companies face right now, we need to take the time to review and consider how the broader risk landscape changed, and how that affects our ability to recover and move forward. Organizations that continue to focus exclusively on pandemic risk open themselves up to additional vulnerability. Our goal is to equip organizations with the intelligence, resources and technology required to survive in the new normal.”

In addition to analyzing the top organizational threats based on the number of warnings sent, the 2020 Risk Report looks at the year-over-year change in specific risk categories. Of course, the biggest increase was in pandemic outbreak risk in 2020 – increasing by 34.7 times compared to the same period in 2019. Additional changes in 2020 include:

  • A major spike in the amount of warnings regarding cyber security risk (1.8X increase), pointing to the challenges organizations face with employees working from less secure environments.
  • A sharp increase in labor practices and human rights risk (1.7 times) and a 1.5 times increase in key employee stability risk.
  • A decrease in political situation risk by 50% and natural hazard risk by 26%

When analyzing how risk developed over the course of 2020, riskmethods data shows a major increase in early warning signs of financial instability and distress of suppliers. This includes indicators such as disaster at business partner site or location, ownership structure, revenue/growth outlook, major product delays and force majeure. In fact, in May 2020, potential financial distress of suppliers accounted for more than 50% of all types of coronavirus-related risk. In addition, during the first five months of 2020, enterprises received nearly as many warnings of suppliers’ force majeure claims as in all of 2019.

“One thing the global pandemic has taught us is how quickly risk management priorities can change. This year we saw a massive shuffling of supply chains overnight,” said Heiko Schwarz, CRO and Founder, riskmethods. “Despite the severity of the pandemic, procurement and supply chain professionals cannot afford to lose sight of other risk and warning signs in the market. With the evolving complexity of supply chain risk, organizations need strategic, proactive, data-driven approaches to supply chain risk management.”

The full report, which dives deeper into how COVID-19 has dominated the 2020 supply chain risk landscape thus far, as well as predictions for the second half of 2020 and beyond, is now available for download.

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