The Most Important Risks in the Global Supply Chain

Trade Wars

Trade tensions across the globe have led to new import tariffs on several consumer products and industrial components. Such trade wars create widespread uncertainty and increase prices, making raw materials harder to obtain. This results in significant disruptions in the supply chain.

Shortage of Raw Material

Many key raw materials used in production are sourced globally. These critical materials often become vulnerable to widespread disruption due to sudden demand spikes or production bottlenecks. Such shortages can halt production and create inefficiencies in the overall supply chain.

Environmental Risks

Environmental risks are among the hardest to mitigate and are often uncontrollable. Natural disasters like earthquakes or extreme weather events severely impact supply chain operations. For example, tropical storms can disrupt ocean carriers, while flooding, storms, or earthquakes may close off airports, docks, and roads. These events delay shipments and cause substantial uncertainty in logistics.

Economic Uncertainty

Global economic slowdowns put immense pressure on supply chains. Economic uncertainty increases financial strain on lower-tier industries and suppliers. Companies must maintain close communication with suppliers, especially during external procurement, to ensure flexibility and quick response to changing market conditions. A survey by the Chartered Institute of Procurement and Supply revealed that ten percent of U.K. businesses with EU suppliers risked bankruptcy during Brexit-related customs delays.

Industrial Unrest

Worker strikes and overtime bans can disrupt transportation networks worldwide. Port strikes are especially damaging since they typically last longer, creating significant supply chain bottlenecks. Industrial disputes can hinder numerous ongoing transport operations across different regions, causing delays and financial setbacks.

Supplier Risk

Relying on external suppliers exposes businesses to multiple risks, including shipment delays, inaccuracies, communication failures, and the possibility of suppliers going out of business. To minimize these risks, businesses must conduct thorough due diligence and regular screening before onboarding suppliers. Periodic assessments also help ensure compliance and reliability. Managing supplier risk effectively requires collaboration between both parties to identify and mitigate potential issues.

Conclusion

The global supply chain continues to evolve, becoming more strategic as disruptions increasingly reach board-level discussions. Effective supply chain risk management enables businesses to assess risks comprehensively and build strategies to safeguard their bottom line.

Contributed by Shahran Sayyed (PGDRM Jan’20)