Supply Chain
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5 Supply Chain Risks Procurement Should be Watching

Here are five keys areas of supply chain risk that could impact buyers this year and into 2019. Is your company ready to manage these potential issues?

In 2017, Resilinc tracked 1,931 different supply chain “events,” 562 of which required an impact notification. This is an increase of about 10% over 2016, with 32% of the companies listed on the S&P 500 Index potentially affected by the risks. The main culprits included natural disasters; weather-related events (i.e., Hurricanes Harvey, Irma, and Maria); and factory fires and explosions.

“A number of geopolitical, macroeconomic, social/technological, and environmental trends continue to impact global supply chain continuity,” Resilinc reports in its most recent EventWatch report. Here are five potential risk areas that buyers should be keeping an eye on right now:

Geopolitical developments in North Korea. Procurement professionals should keep a keen eye on geopolitical developments in North Korea. “The situation appears to be volatile and potentially disruptive to the global supply chain network given the nation’s proximity to China, South Korea, Japan, and the U.S.,” Resilinc points out in its report, “both geographically and politically.”

China’s response to pollution and its impact to manufacturing. The country’s efforts to curtail pollution gave companies much to contemplate in 2017. Locally, for example, factories were shuttered to help reduce hazardous levels of smog throughout the country. “As pollution is not an easily solved problem in the short-term,” Resilinc notes, “factory shutdowns and manufacturing limitations may be further utilized by the country this year.”

Cyberattacks and cybersecurity. Cyberattacks, particularly of the ransomware variety, and issues of cybersecurity made headlines throughout 2017. “Cybersecurity, if not already, should be of the utmost concern of supply chain professionals,” Resilinc advises.

NAND flash chip supply shortages. Last year, reports surfaced of temporarily halted production at Toshiba facilities in Japan leading to strained supplies of NAND flash chips globally. “As global supplies of NAND flash chips are highly reactive to even slight changes in production,” Resilinc notes, “persistent monitoring will be necessary.”

Increased volatility of storms and natural disasters. With billions of dollars in damages incurred due to natural disasters in the United States alone last year, the spotlight has, for obvious reasons, turned again to climate change and its role in the increased volatility of storms. “Stronger storms should be expected and should be mitigated against as well as possible,” Resilinc concluded. “Pertinent climate change/weather data should be used in decision-making when available.”

Taking Proactive Steps

Of course, it’s not enough to just keep tabs on potential areas of risk; procurement must also do what it can to avoid the risks and/or help mitigate them, should they directly impact their organizations (or their suppliers, or customers).

“As supply chains become increasingly global, the ability to manage associated risk across geographic boundaries and time zones is fast becoming a top priority for organizations around the world,” Tony Harris writes in Supply & Demand Chain Executive. One way to ramp up a procurement-centric risk management plan is by more carefully evaluating Tier 1, 2, and 3 suppliers and their individual operations. He suggests using evaluation criteria like:

  • How long have we been trading with this supplier?
  • What is its performance to date concerning product and service quality and on-time delivery?
  • How many contracts do we have with the supplier?
  • Do the terms remain optimal given changing marketplace conditions?
  • Do we have any large purchase orders about to be placed?
  • Is the supplier’s profile information up-to-date (i.e., details on insurance and other certificates)?
  • Does the supplier have a rigorous governance framework to detect and root out slavery, child labor, and other reputational risks from its upstream trading partners?

Pointing to advanced technologies like artificial intelligence (AI), machine learning, and cloud-based applications, Harris says procurement can map the bill of materials for products and services right down to their raw inputs. Then, that information can be cross-referenced and used to identify any “global hotspots” where areas of supply chain risk may exist.

“As digital technologies reshape the way businesses work together,” he concludes, “procurement is evolving from its historic role of generating cost-savings to fostering collaboration, driving much of the strategic value that fuels growth.”

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