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Change is inevitable in modern supply chain management, and risk management is essential to success. Risks evolve and become more prevalent with time. Risk management strategies of yesteryear are ineffective in the changing landscape, and no type of transport can avoid risks.
Risks exist in land, air, and ocean freight. They’re inevitable and unavoidable. A poor grasp of hazards in your supply chain will increase freight spend and diminish the brand value. Understanding the top 10 global supply chain risks can work to reduce their impact. Shippers can mitigate the likelihood of occurrence and minimize disruptions simultaneously. Here are the top dangers we believe your company needs to consider.
Sources of supply chain risk
Supply Chain Risk #1: Political and Government Changes
Political instability ranks 4.3 on a scale of 1-10 regarding its concern for the impact on global trade. Brexit has harmed trade in Western Europe, creating volatility and weakening the British pound. This example reflects only one area of concern, and changing political affiliations and governing parties in countries around the globe will increase the risk of a trade.
What to Do About The Types of Supply Chain Risks
Maintain a stricter level of compliance in operations, even if governments allow for a less-stringent approach. These reduce the risk of compliance violations and safeguard against the enforcement of new regulations. In addition, shippers should look for non-associated carriers that operate outside of affected governments, "third parties," to handle trade needs.
Supply Chain Risk #2: Economic Instability
As Lucy Dixon of Supply Chain Digital explained, economic instability represents another threat to global trade. For instance, the bankruptcy of South Korea's 7th largest shipping company (Hanjin Shipping) led to a dramatic reduction in global supply chain shipping capacity. Capacity fell by 3 percent, and up to $14 billion in cargo could not dock.
What to Do About It.
Consider ways to increase employment rates in countries you operate within. For example, consider launching apprenticeship programs, encouraging supply chain careers among secondary-school students, and engaging with the community.
Supply Chain Risk #3: Extreme Weather Events
Extreme weather represents one of the most significant global risks to ocean freight. Tropical storms can toss ocean carriers aside like trash. Depending on the route, tropical storms may not have been a significant threat in recent years. However, global climate change indicates tropical storm threat is on the rise.
What to Do About It.
Shippers must re-evaluate ocean route use and determine which carriers can increase shipping in anticipation of tropical storms. This allows for flexibility to scale back operations during tumultuous times.
Supply Chain Risk #4: Environmental Risks
Impact on the environment makes up another critical risk in global trade. Ecological responsibility and sustainable practices are both forms of social responsibility. As more laws are passed governing the environment, ocean freight carriers will come under greater scrutiny, says Dave Blanchard of Industry Week.
What to Do About It.
Source raw materials from reclamation centers where possible. Ensure all reclaimed products adhere to appropriate ISO standards, and avoid the unnecessary disposal of wastes that could otherwise be recycled.
Supply Chain Risk #5: Catastrophes
Catastrophes include human-made and natural disasters that do not fall into the weather-related category. For instance, earthquakes and famine are two catastrophes that may affect global trade. According to J. Paul Dittman, Ph.D. via Supply Chain Management Review, up to 47 percent of shippers do not have a backup plan for ensuring continuity following a natural disaster or major equipment failure.
What to Do About It.
Develop a robust strategy for ensuring continuity following a catastrophe. This may include the devotion of resources to maintain operability, cloud-based tools, and more.
Supply Chain Risk #6: Connectivity
In the 24/7 world of modern trade, global supply chain risks also exist within the connectivity of today's systems. Although systems can be integrated through open-source software, integration and modification of systems increase risk. Each modification may result in added costs for new upgrades, and poorly integrated systems could lead to bottlenecks and disruptions.
What to Do About It.
Create a backup data resource. Decentralize data storage. Ensure system connectivity is on a secure network. Eliminate vulnerabilities to your systems, such as encrypting personnel PCs, tablets, and smartphones. When integrating systems, avoid unnecessary modifications, and work with expert supply chain systems integrators to maximize efficiency and profitability.
Supply Chain Risk #7: Cyber-Attacks
Cyber-attacks have become a predominant risk in modern supply chain management. Someone with malicious intent could bring down entire supply chain networks and force freight rates to skyrocket. Cyber attacks are also becoming a weapon for terrorists too, so any person, government, or agency could be working to undermine your digital footprint.
What to Do About It.
Choose supply chain systems vendors with a proven record of maintaining stringent cybersecurity protocols, including AES 256 encryption. Limit personnel access to the system to those necessary for shipment processing and maintain the strong physical security of your facilities. Penetration testing and a strong IT team can also reduce cyber-attack risk.
Supply Chain Risk #8: Data Integrity and Quality
Data integrity refers to the quality and strength of data for use in supply chain management. The wrong freight procurement data could leave shippers with reduced profitability and open doors to failure. Also, more companies are apt at isolating their data from others, increasing risk. The fear of a breach is omnipresent, but data integrity can be strengthened by sharing it with the proper supply chain partners.
What to Do About It.
Validate data for accuracy and timeliness. Old data is bad data. Systems that leverage real-time data monitoring can be a crucial step in increasing data integrity and quality. Also, consider using blockchain-based technologies to eliminate erroneous changes in data retroactively. Shippers who switch to collaborate with data can increase data integrity and decrease ocean freight spending.
Supply Chain Risk #9: Supplier Consistency
Only 45 percent of suppliers can continue operating after a disaster. Disruption in supplier consistency may result from any risk coming to fruition. Supplier consistency applies to manufacturers as well. Raw and reclaimed materials are subject to disruption risk.
What to Do About It.
Procurement departments must take the full burden of ensuring supplier consistency. This is possible through the creation of a diverse supplier network. Shippers should also expand available carrier routes to meet changes in suppliers used.
Supply Chain Risk #10: Transport Loss
Where risk exists, the risk of losing the ability to transport goods exists. Even carriers with strong networks may suffer setbacks considering risk, so having a plan to overcome these issues is key to success.
What to Do About It.
Benchmark ocean freight rates to know if you are getting a competitive price. Next, identify the carriers that service your ports and explore other carrier contracts and services that can be used when current carriers are unavailable. Furthermore, shippers should purchase cargo or freight insurance to create a safety net. This also reimburses customers or B2B partners for lost freight and missed delivery deadlines.
Proactive Risk Management Is Key to Ocean Freight Success.
Know the top risks in global ocean freight management. Failure to understand these risks is a risk in itself, putting your organization on the brink of profit losses and disruption. Shippers must rethink risk management strategies to include all potential risks in the global supply chain and how they affect supply chain partners. The best-laid supply chain strategy is doomed without full risk assessment and management.
Since benchmarking ocean freight rates enables data-based decision-making, it lends itself to better risk management.
