The global supply chain is a complex, intricate system fraught with countless ways in which even the smallest mishap can send shockwaves throughout the entire system. According to Accenture, significant supply chain disruptions have been found to cut the share price of impacted companies by 7 percent on average. A report prepared by the World Economic Forum highlighted such concerns about risk expressed over the past year. Among those threats mentioned were natural disasters and demand shocks, as well as systemic vulnerabilities like oil dependence and information fragmentation. At the same time, new risks to the global supply chain continue to arise, with cybersecurity risks, rising insurance prices and trade finance costs leading supply chain experts to explore new mitigation options.
A four-pronged approach to mitigate risk
Fortunately, there are ways in which a supplier can protect itself from supply chain disruptions. The World Economic Forum suggested a four-step approach in which supply chains can build resilience against risk.
The first component is to establish partnerships. As manufacturing and distribution extends its global reach, its increasingly fragmented nature requires an interdependent, international network of cooperation and communication among players throughout the supply chain. Moreover, those in the supply chain need to establish policies that establish "a common risk vocabulary" and a set of standardized rules governing the supply chain process. The report also cited strategy as a crucial component so the supply chain collective can calculate risk factors and map out contingencies.
Integrated data gathering a key component
The fourth and final component deals with encouraging the use of powerful automated data collection systems. Operations experts like Morris Cohen of the University of Pennsylvania's Wharton School emphasized that even for those suppliers demonstrating a high level of expertise in the supply chain is insufficient to understanding its intricacies when preparing for disaster and similar shocks.
"Many people have good intuition, but they may not have the tools and analytical data [needed to alleviate their supply chain risks]," said Cohen.
Advanced data collection methods and integrated supply chain software allow suppliers access to real time information access and the latest logistics updates - tools seen as critical to mitigating risk. By being able to immediately detect supply chain disruptions, experts said suppliers will then be more capable of making informed decisions.
"[With] investments in capacity, flexibility and technology...90 percent of the quality of the results will be determined by the decisions [a supplier] made in advance [of a risky event,]" said Cohen.