Preparing Now For What the Future May Bring
In 2022, it became clear that effective supply chain risk management (SCRM) is not a luxury but a necessity. The year saw numerous disruptions to global supply chains, including Russia’s invasion of Ukraine, the Log4Shell vulnerability, and concerns over rail strikes.
The added complexity of new regulations such as the Uyghur Forced Labor Prevention Act (UFLPA) compounded these disruptions. It is not surprising, then, that 79% of boards responding to the EY Global Board Risk Survey 2021 believe that improving risk management will be crucial for creating value in the next five years.
As the risk and compliance environment continues to evolve in 2023, businesses must prioritize robust SCRM and third-party risk management to protect their operations from future challenges. To do this, companies need access to the data and tools that enable them to proactively strengthen their SCRM posture. By taking action now, businesses can be better prepared for whatever the future may bring.
2022: The Case for SCRM
In 2022, the global supply chain faced numerous disruptions that tested the resilience of almost all businesses. In February, Russia’s Ukraine invasion resulted in significant and immediate effects on personnel, with longstanding effects on the global economy, vendors, and supply chain that are still being felt.
Following the invasion, companies needed to ensure the safety of personnel on the ground, then look to their suppliers to see the invasion’s full impact on their company.
The subsequent global sanctions on Russian entities and businesses added complexity, with organizations quickly working to identify the impact of cutting ties with sanctioned entities. The swift action this required demonstrated the critical nature of supply chain visibility and robust SCRM processes.
Throughout the year, cyber supply chain vulnerabilities became a major concern. In September, Microsoft confirmed two zero-day vulnerabilities. Earlier in the year, the Log4shell incident demonstrated the impact that widespread vulnerabilities in a company’s software supply chain can have. Firms found it difficult to quickly respond to, assess, and mitigate these vulnerabilities in near real time without the use of technology.
Regulatory action, such as the UFLPA and NDAA 889, increased pressure on businesses to have visibility into their supply chains.
The UFLPA requires companies to perform adequate due diligence on their suppliers to ensure they are not importing goods made from forced labor in the Xinjiang region of China.
NDAA 889 prohibits government contractors from providing telecommunications and surveillance goods from certain Chinese entities to the federal government. In both cases, it is the responsibility of the business to comply with these regulations.
2023: What is to come
The effects of an economic downturn are already felt across the globe and will continue throughout 2023, leaving SCRM in a tricky position.
In the United States, the impact of an economic downturn is already evident with more than 88,000 layoffs in the tech sector this year. As the economic downturn persists, companies will cut costs and run leaner supply chains. Moving back to just-in-time SCRM can negatively impact businesses, especially with heightened regulatory pressure. Companies need to find a balance between cutting costs and ensuring compliance.
Environmental, social, and governance (ESG) issues are expected to become a key focus in the context of supply chains in the coming year. This is particularly relevant in the wake of regulations that prohibit the use of goods made with forced labor. As a result, ESG principles are likely to be emphasized within supply chains in various regions.
Additionally, the recent geopolitical disruption caused by the Russia-Ukraine conflict highlight the potential impact of such disruptions on global supply chains. With tensions rising between China and Taiwan, organizations need to consider the impact that geopolitical disruption in Asia could have on their supply chains.
Begin preparing today
Organizations shouldn’t wait for widespread disruption or a shutdown of company systems to strengthen their SCRM posture. Beyond the benefits of having a clear, overarching view of an organization’s supply chain ecosystem, a robust SCRM program and framework can assist companies increase return on investment. By providing the flexibility to quickly act and respond when supply chain disruptions occur, or new regulations come into effect, organizations have the ability to better overcome disruption and continue business as usual.
Implementing robust supply chain mitigation strategies, including bridging and buffering, can help an organization prepare for what’s to come.
Bridging means bridging the gap with suppliers to ensure communication is strong before, during, and after any type of crisis, including climate-related events.
Buffering refers to inventory reserves that act as a buffer, or alternative supply sources should primary suppliers face disruption. Proactively implementing these mitigation strategies can help a business respond with agility in the face of disruption.
As supply chain disruptions become more complex, the technology used to detect and mitigate associated risks is also advancing. These developments, such as the ability to perform sub-tier illumination and modeling from a command center, can greatly enhance supply chain risk management. In the near future, increased predictability in supply chain disruptions will be a game-changer for SCRM.
Evolving with the risks
The risk and compliance landscapes continue to evolve, and businesses must aim to remain one step ahead. But with robust SCRM practices, companies can weather the storms ahead and best position themselves to succeed in the face of evolving threats.
Knowledge is key. Knowing where you stand today, understanding the risks and regulations on the horizon, and being armed with real-time visibility into your supply chain can ensure your organization can thrive for years to come.