According to the International Organization for Standardization definition, resilience is "the ability of an organization to absorb and adapt in a changing environment, to enable it to deliver its objectives and to survive and prosper". While geopolitical and war conflicts are taking place, especially Russia’s invasion of Ukraine, organisations are navigating through challenging times and are particularly susceptible to supply chain risks. When the existing supply system breaks, it breaks a network and not just a single link. Despite these greater vulnerabilities and risks associated with the fast-changing environment, organisations can find ways to adapt and manage them by building a resilient supply chain.
What Are the Main Business Vulnerabilities?
In general, business vulnerability can take many forms, and these include:
- Financial vulnerability ranges from more internal policy factors, such as debt and credit ratings, provisions for health care, and pension plans, to macroeconomic factors such as interest and currency fluctuations, inflation, and economic recessions.
- Strategic vulnerability ranges from internal aspects such as ethics violations, budget overruns, and ineffective planning, to external factors such as attacks on the brand, new competitors, and mergers and acquisitions.
- Operations vulnerability ranges from internal risks such as theft, harassment and discrimination, and cyberattack, to more external factors such as supplier or service provider failures.
- Hazard vulnerability comes from random and malicious disruptions, such as intentional damage to property, intentional land or water pollution, and terrorism, as well as from weather- or nature-related risks such as earthquakes, hurricanes, floods, and so on.
Why is Resilience Important?
Supply chains have become finely tuned to drive down waste and costs, but at the expense of flexibility. Options to quickly respond to dramatic shifts in demand, supply and logistics just haven’t been available. The Covid-19 pandemic disrupted global cargo movement, while at the same time boosting demand for certain consumer goods. The combined effect resulted in an abundance of empty containers that became stuck in the wrong places. The network was broken.
Another big challenge is Russia’s invasion of Ukraine, which has triggered new disruptions. Now it is affecting markets ranging from food to energy to semiconductors. As a result, supply chain imbalances have led to inflation and food shortages.
To effectively manage all these risks, companies need a strategy, a set of skills within their teams, processes, and tools which help to build up a truly resilient supply chain.
What are Some Important Resilience Risks?
Health Risk
The global pandemic has shown that supply chain over-efficiency can be a major threat to resilience. The world’s recent rush to access personal protective equipment in the face of the pandemic, revealed that monosourcing from one primary country can be just as risky as monosourcing a component from one primary company. It showed how easily just-in-time processes can become overwhelmed.
It also showed just how easily forged or out-of-conformity material can be sourced and provided. A customer who unknowingly purchased an out-of conformity surgical mask, or a surgical glove that has been previously used, would be paying money to significantly increase their own health risk.
Climate Risk
Mitigating risk is more than reacting to one-time, isolated incidents. The future of global trade requires real-time resilience – the ability to predict and transcend external events.
- According to Accenture, 49% of CEOs report they are grappling with supply chain interruptions due to extreme weather events.
- 54% of CEOs say their companies are only at a basic level or have not even started conducting scenario analyses to identify physical and transition risks to build climate resilience and adoption.
- 52% of CEOs globally say their companies are at a basic level or haven’t begun implementing early warning systems for preparedness for climate-risk events.
In essence, half of the CEOs surveyed were unprepared for the inevitable – the need to change.
Geopolitical Risk
The world is becoming increasingly volatile, uncertain, and complex. Risks include political instability, terrorism, trade restriction, theft, fraud, corruption, and illicit trade. There can be no doubt that some countries pose greater geopolitical risk than others. It is especially important to analyze your suppliers’ network based on country and ensure none of them poses a greater fragility risk.
Technological Risk
We are witnessing increasing numbers of attacks on our information systems. These vary from communication disruption to cyberattacks; from ransomware to equipment failure and distributed denial-of-service (DDoS) attacks. The impact can be company-wide, or even country-wide.
Response to Unplanned Events Requires Information, Rapidity, and Communication
Modern supply chains must be equipped to quickly and efficiently adjust operations to manage disruptions, and even get ahead of them, to minimize the impact of events before they occur.
- If you do not know your suppliers’ suppliers, you are unaware of their impact on your process, unaware of the opportunities to respond to the threat, unable to work on your own to help address their problems, and forced to plan from a blank page.
- Companies that are at the forefront of innovation communicate along their supply network to make the best use of disruptions to improve business.
Continuity Requires Visibility and Planning
A company establishes resilience by building anticipation and planning into the procurement and risk management process, and by elevating the procurement process to a strategic role at the Board level.
Managing supply chain risks demand cross-domain teams to:
- Identify and assess risk: Requires visibility across the supply chain to have a good understanding of all tiers involved.
- Quantify risk: One way is to plot the likelihood of occurrence against business impact and then prioritize accordingly. Further, it can also be assessed against the financial impact and time to recover from any risk.
- Mitigate risk: There are various risk mitigation strategies that can be employed, such as increasing the use of standard components or multiple sourcing to avoid supplier failure. The objective is to have strategies in place that minimize business disruption.
- Respond and recover: The keys to speedy recovery are having mitigation strategies in place, and business continuity plans that have been tested.
Monitoring for Improving Resilience
Event monitoring
Some services, both free and subscription, are available to provide current information on the status of global events. These services are a valuable starting point for identifying resilience risks. A resilient, sustainable supply chain should have access to monitoring the changing global scene. Monitoring data can be incorporated into transparency programs, and can be designed to automatically flag instances of elevated risk.
Key platforms to help you monitor risks:
Global health events
Global terrorist and suspicious events
- The American Association for the Advancement of Science Globalincidentmap.com.
Emergency disaster events
- GDACS is a cooperation framework between the United Nations, the European Commission, and disaster managers worldwide to improve alerts, information exchange, and coordination in the first phase after major sudden-onset disasters.
Country fragility
- Fragile States Index, monitoring risk and vulnerability in 179 states.
- Heidelberg Institute for International Conflict Research.
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