The future of supply chain risk management

The COVID-crisis has prompted a period of introspection as organisations question how to best structure their supply chains and manage their risk

Trends towards global sourcing, mobile warehousing, just-in-time production and lean manufacturing have created supply chains that are highly optimised, but also increasingly complex. When things are going well, this means cost-effective operations, less waste and companies can react flexibly and in an agile way to customer demands.

However, these trends also expose the supply chain to new, sometimes hard to recognise risks. And when there is interruption, the complexity of these supplier systems and the immediate nature of production can mean businesses are suddenly facing significant disruption with immediate impact to bottom lines, or even market share and reputation.

For instance, when governments imposed lockdowns to curb the spread of coronavirus, many firms found that manufacturing ground to a halt as the transportation of goods was interrupted. Where once a business was likely to have spares and back-ups in warehouses, just-in-time practices mean that many businesses are now left without access to the services or parts they need to operate.

Shifting sands

The uniquely volatile business environment of the past year has brought to the forefront of the business agenda the supply chain vulnerabilities they face. For some, this could signal a change in practices in the future to increase supply chain resilience – whether that’s looking at near shoring and onshoring, reintroducing back-up stock in warehouses or installing alternative production sites.

Kocher said: “What’s changing is how risk managers, management and insurers alike recognise and factor supply chain risk into their decision-making. With more and more severe supply chain interruptions materialising, businesses have started to reconsider certain aspects, such as having suppliers nearby to eliminate certain risk factors from their business activities.”

The role of risk engineering

As organisations continue down the path of introspection and question how to best structure their supply chains and manage their risk, it becomes ever-more crucial that risk managers understand the full extent of the vulnerabilities in their own production process. Kocher believes that risk engineering plays an increasingly key role in this process.

“One of the key value drivers is to understand your supply chain and the assumptions you are making about it in case of disruption. This may sound trivial, but it is a fundamental condition to be in place before conducting impact assessment, quantification, deciding on the mitigation strategy and implementing mitigation measure. A structured approach to ensure adequate understanding in sufficient depth is critical. ”

Empowering better decisions

Often, when a company considers key or critical suppliers, it is examining its supply chain with a financial lens, or with a strong focus on individual business sections. A realistic company-wide, impact-oriented view, underpinned with decades of actual loss experience, supports the identification of key exposures which may otherwise go unnoticed.

Kocher concludes: “There is no one perfect way of managing supply chain risk. The risk engineer brings to the table a wealth of experience of what the process could look like, and is able to pick up the individual client where they stand in their supply chain risk management journey, with the goal of bringing them further towards a comprehensive supply chain risk management adapted to their specific needs.”

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Supply Chains in Advanced Markets Should Become More Agile, Says Atradius

Atradius, a consultancy specializing in trade credit insurance, surety and debt collections, maintains that the global economy has continued to gain momentum over the past months, with a 3.1% expansion projected for this year.

Higher inflation, falling unemployment, and strengthening Purchasing Manager Indices (PMIs) all suggest higher GDP growth in advanced markets.

Atradius analysts observe that the U.S. economy leads this trend while the recovery in the eurozone becomes increasingly entrenched. The outlook for emerging markets is also brighter, as Brazil and Russia are emerging from recession, and access to finance remains favorable. While the global economic outlook is more robust than in previous years, political uncertainty remains a downside risk to stability.

However, the main challenges to the global outlook – the threat of deflation, negative bond yields, austerity, and low commodity prices – are slowly phasing out.

Global trade is supporting this recovery. After a 1.3% expansion in 2016, trade growth (12-month rolling average, y-o-y) has picked up to 3.3% as of July 2017. The stronger-than-expected expansion is being driven by intra-regional trade flows in Asia and strong import demand from North America.

Despite political uncertainty, most high-frequency indicators point to sustained growth: the global composite PMI posted held steady at 54 in September, pointing to a solid and stable rate of expansion. This has motivated some dramatic upward revisions of trade growth forecasts in 2017. The WTO raised its 2017 forecast for merchandise trade growth to 3.6% from 2.4%.

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Zara’s Agile Project Management Advantage

Zara is a fast fashion retailer that has achieved staggering success since its inception in 1975. Compared to its Zara peers in retail, Zara has one practice that helps contribute to its competitive advantage: an agile project management oriented supply chain.

Agile Project Management
Broadly, agile project management is based on the 12 principles brought forth by the agile manifesto. This manifesto forms the basis for a project management theory that focuses on iterations, adaptations, collaboration, and constant improvement. As opposed to many other project management designs, agile project management is a non-linear approach to problem solving that hopes to provide flexibility and adaptability, without having to go back to the start with each iteration undertaken.

While originally developed for software and technology problem solving, agile project management has gained acceptance in the supply chain industry for its ability to help companies adapt to market dynamics. In the same way agile project management helps a software company develop non-linear solutions to problems, agile project management allows a supply chain to creatively adapt to market evolutions without having to disrupt supply chains from start to finish. Zara has used this agile supply chain to earn a distinct and unmatched advantage in retail.

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