Supply chain practitioners, accustomed to the ongoing disruptions throughout the sub-tier supply chain, are familiar with the usual risks that threaten supply chain continuity: factory fires, port disruptions, force majeure, chemical spills, and so on. But as global supply chains grow more interconnected, seemingly unrelated events can have a ripple effect, branching out and impacting your supply chain.
In this post, we examine three of these less apparent supply chain risk types, explain the nature of their risk in the supply chain context, and present guidelines to help you better respond to and mitigate such risks.
1. Leadership/Management Transition
While leadership transitions at major companies receive significant media visibility, executive management changes at smaller companies (e.g. Tier-1, Tier-2, sub-tier suppliers) receive minimal public attention, if at all. When it comes to smaller companies and suppliers, this is especially critical because management transitions can result in drastic changes to both the company’s internal hierarchy and corporate strategy that could impact your relationships with suppliers and the timely receipt of goods, materials, and services along the supply chain.
Following a leadership transition or mergers and acquisitions, a company may undergo a period of extensive layoffs and departmental reorganizations (think Hewlett-Packard/Compaq in the early 2000’s). Such measures can not only impact the specified supplier’s market stability – they can impact customer-supplier relationships. Suppose a point-of-contact is let go or relocated to a different department — the customer has to seek out a new point-of-contact within the freshly reorganized company.
Moreover, changes to a supplier’s corporate strategy present a wide array of supply chain risks to preexisting customers. A newly appointed executive may decide to take the company’s operation in a different direction. For example, a supplier of a critical raw material or component could start diversifying its product offerings, in turn affecting the quantity and quality of the previously specialized material or component. Similarly, a supplier that previously offered a wide array of materials and components could decide to consolidate and limit its offerings – offerings your company may have previously relied on. A new executive may also decide to sell subsidiaries, close or open new manufacturing plants, introduce new cost cut plans, etc.
In the event of a trading partner’s leadership transition, companies are advised to:
- Contact supplier(s) to determine whether the leadership transition was planned or the result of unexpected circumstances.
- Analyze the industry experience and executive track record of the new executive.
- Monitor shifts in corporate strategy and agenda
- Ensure visibility into changes in financial and hierarchical structure
- Analyze the effects a leadership change could have on growth and expansion, workforce management and administrative operations
- Request proactive communications from supplier to ensure that changes and timelines are met.
2. Epidemic/Public Health Issues
To add to the potential human impact, disease outbreaks can occlude the free passage of the people and goods that underpin global supply chains. Contagious medical threats can potentially spread through the human networks that often correlate strongly with supply chain networks. Furthermore, the innate human fear of contagious health issues can stymie overall demand because of widespread caution, as well as the supply and price fluctuations that result from stockpiling. Widespread fear of diseases spreading often results in school closures and quarantines which could require critical segments of the workforce to remain at home. As such, epidemics can strike multiple countries and industries from several directions.
In the event of an epidemic or public health crisis, companies can benefit from the following guidelines:
- Determine which regions and suppliers may be impacted by the disease outbreak
- Contact suppliers to discuss and evaluate the potential impact on operations
- Determine whether operations can be continued in an uninterrupted manner
- Estimate the expected percentage of output and expected time of recovery
- Create a What-If scenario to assess the impact on labor, parts, materials, stock, shipments, resources, revenue, etc.
- Identify potential mitigation options such as alternate facilities, back up inventory, freight re-routing, etc.
3. Commuter/Public Transportation Disruptions
Public transportation and commuter disruptions can impact supply chain continuity because they disrupt the movement of the people that power supply chains in the first place. From subways to railways to municipal bus routes, large segments of the global workforce rely on public modes of transportation to get to their place of work. This includes everyone from air traffic controllers to factory workers, miners to shippers and cargo crews. While these disruptions don’t necessarily equate to total corporate standstills, they are a source of supply chain risk because understaffed supply chain operations perform suboptimal, at best.
For example, London tube strikes are announced weeks, even months, in advance due to the London’s reliance on public transit. When in effect, these strikes impact the entire city and the commuters within it.
Though it may sound insultingly obvious, humans are an inextricable part of the supply chain. If they can’t get to their job, they can’t do their job. If they can’t do their job, it makes it harder for you to do yours.
Following the notification of a commuter/public transportation disruption, companies are advised the following:
- Determine which region, port and airport may be impacted by the commuter disruption
- Contact suppliers to find out their alternate source of shipments, and continue monitoring the situation
- Estimate the expected delays in shipments, and analyze the quantity and quality of inventory on hand
- Create What-If scenario to assess the impact on inventory, shipments, products, revenue, market, etc.
- Identify potential mitigation options such as alternate sources, alternative routes, consuming backup inventory, etc.
Monitoring such abstract risks can be burdensome to a company with an extensive multi-tier supply chain. It’s a 24/7 responsibility. That’s where supply chain event monitoring services come in. Supply chain event monitoring services keep fingers on the pulse of these diverse risks so you don’t have to.
“We monitor global supply chain risks around the clock because supply chains never sleep.”
– Shahzaib Khan, EventWatch Program Manager