Rethinking Risk Management

Posted on by Teddy Nee

Anticipating emerging risks means reshaping the board.

Risk management is often cited among the top two or three items on board agendas, yet many companies have found themselves unprepared for a variety of recent shocks, including the COVID-19 pandemic, the Great Resignation, cybersecurity events, labor shortages and supply chain disruptions.

The breadth of risk for public and large private companies has grown exponentially in recent years, but few organizations have gone far enough in evolving and expanding their risk management approach to keep up with the pace of change. This is one reason regulators have stepped up enforcement of board requirements around fiduciary duties.

In some cases, boards may need to update their views about the world’s ability to deal with risks. These views may include the expectation that supply chains are infinite, labor is unlimited and the United States is always able to innovate its way out of problems.

That’s not the world today’s companies operate in. World Economic Forum, the Control Risks global risk survey, McKinsey and others have identified several of the most significant areas of current and emerging corporate risk. The top risk areas include:

Proper understanding and articulation of company risk appetite, risk review objectives, and existential and emergent risks.
People and talent.
Mergers and acquisitions.
Digital transformation.
Cybersecurity.
Climate risks and action.
Future pandemics or similar situations.
Supply chain vulnerabilities.
Regulatory risks.
Political risks.

These risks present challenges on many levels. Boards must identify, assess and manage risks intelligently, while simultaneously focusing on business opportunities that may arise from the very same issues. They must communicate risks not just to shareholders, but also to other stakeholders.

Today’s boards need to consider whether they have the right people, expertise, committees and processes to address today’s higher-risk business environment. Crises are likely to come faster and hit harder. However, boards that make changes to better address risk can succeed in making their companies more resilient.

The following are changes boards should consider to enhance their risk management approach and better help their companies navigate and mitigate emerging risks.

Record-Breaking Supply Chain Disruptions and Supply Shortages

Posted on by Teddy Nee

Factory Fires, Mergers & Acquisitions, Business Sales, Factory Disruptions, and Leadership Transitions rank as the top five supply chain disruptions in the first six months of 2021, with life sciences, healthcare, and the automotive industry being most impacted.

Records are to be broken, say observers of the recently-concluded Olympics. But the dark side of such comfortable declarations was evident in global supply chains this year.

According to data released by Resilinc, a global leader in the supply chain risk monitoring space, human-caused supply chain disruptions are rising overall, with the amount of factory fires up 150% (when comparing the first half of 2021 to the first half of 2020).

This year is on track to have the most factory fires ever reported. The uptick is due mostly to gaps in regulatory and process execution as well as a shortage of skilled labor in warehouses.

The data also reveals that disruptions due to Supply Shortages (semiconductor chips, plastics, cardboard are all examples) were up 638% in the first half of 2021. Resilinc sent out 251 Supply Shortage alerts; this type of disruption ranked 6th in terms of most reported events (behind Leadership Transition). Supply Shortages are driving consolidations, mergers, and business sales as companies look to give a quick cash boost to the core business or optimize the supply chain to best serve the customer base.

In the first half of 2021, almost half (46.5%) of disruptive events occurred in North America, followed by Europe (23.43%), and then Asia (19.45%). In comparison, in the first half of 2020: North America had the most disruptive events; Asia had the second highest; Europe had the third most.

While Human Health disruptions, which include COVID-19 related events, ranked 19th in terms of the number of event alerts in the first half of the year, Resilinc has continued to designate the event as “severe.” It’s the first time in the company’s history ranking an event at that level of impact.

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New DHL report reviews supply chain real estate

Posted on by Teddy Nee

Companies are re-thinking their go-to-market strategies and, as a result, making different choices about how they locate, design and operate their distribution networks.

This has created a new landscape for supply chain real estate, according to a report published by DHL. Global and regional supply chains are changing, as they adapt to the new realities of commerce and competition.

The findings are part of The New Landscape of Supply Chain Real Estate report, which has been authored by Lisa Harrington, President of the lharrington group LLC, in collaboration with DHL.

The report states that while a healthier global economy fuels the demand for supply chain real estate, it is not the only driver.

Four other forces are at work, and they are having a transformational effect on companies’ distribution center networks.

They include:

The e-commerce revolution

Globalization and right-shoring

Mergers and acquisitions

Technology innovation

“The face of global supply chain networks is changing,” said Harrington, author of the report.

“Gone are the days of operating a static real estate portfolio and tweaking it every five to seven years. Business is too dynamic and the stakes are too high.

“The fact is, the way companies manage their supply chain real estate portfolios has morphed from a tactical/operational concern to a strategic differentiator. Supply chains that operate more nimbly and at lower cost don’t just save money. They drive growth.”

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