After a number of high-profile scandals uncovered forced labor and unfair working conditions in global supply chains, companies are now facing accumulating pressure to increase transparency and demonstrate environmentally and socially responsible practices. As the economy strengthens and the competitive landscape of the market intensifies, the trend of globalization and outsourcing to lower-cost regions is also growing. And while these strategies are intended to improve supply chain efficiency and enhance operations, they present a robust set of challenges.
A report recently published by Deutsche Post DHL Group revealed that the majority, or 74 percent, of companies experienced a supply chain disruption last year. In an effort to create more sustainable organizations, it is imperative that corporate leaders implement effective risk mitigation programs. However, predicting and planning for interruptions is becoming increasingly difficult as supplier networks grow. Not only is it harder to see into distant tiers of the production line, but transitioning to digital platforms is also adding to the vulnerability of companies by increasing chances of cyberattacks. This is why, the report indicated, the success of a business does not just depend on the efficiency of its supply chain, but on the resiliency of it as well.
Some industry professionals believe the response government agencies have to natural disasters can actually weaken resiliency efforts, Business Insurance reported. Speakers who gathered at a Washington-based summit earlier this month, the source said, suggested that harsh weather conditions and other disruptions shouldn't be perceived as a surprise; they should actually be planned for so thoroughly that losses are incorporated into budgets.
Country Risk Solutions CEO of Bethel Daniel Wagner indicated that, when it comes to the evolving nature of supply chain threats, a predominant concern is the clash between disruptions that are naturally occurring and ones that are caused by humans.
"It's new for the simple reason because we had previously been accustomed to thinking about risks being in silos," Wagner said, according to the source. "It's important for every risk manager to become a decision-maker, and every decision-maker to become a risk manager."
In addition to natural disasters, the DHL report outlined a number of other issues threatening supply chains, including problems with quality, port congestion, cargo theft and cyber security. The source noted that it is important to understand the risks and potential impact each could have on operations.
Although the need for better risk mitigation and resiliency is present across all industries, the processes for successfully implementing and executing these initiatives vary among sectors. The threats differ, so the mitigation solutions should as well. For example, DHL indicated that the automotive, manufacturing and engineering markets are mostly susceptible to problems related to compliance and transportation, so emergency response planning and multiple delivery channels should be major focus areas. Health care and IT companies, on the other hand, are more often plagued by reputation concerns, a limited supplier network and vulnerability to fraud, so their strategies should center on real-time visibility and threat detection solutions.
Another approach that the source suggested companies could use for risk mitigation is leveraging lead logistics partners, since working with LLPs can help create better organization and structure for complex supply chains.
"Wherever companies find they are no longer achieving sufficient performance improvements from their traditional sourcing-based approach to logistics, and where they want to improve visibility, control, agility, and compliance in their supply chains, the LLP approach can offer significant advantages," DHL Supply Chain President of Global Automotive and LLP Paul Dyer said in the report. "We also see a lot of interest as companies move from a regional to a global approach to their logistics operations, and as they tackle the rising complexity that comes with entry into emerging markets."
The source indicated that benefits of this strategy include better control and real-time risk identification, increased visibility and improved customer service.
Businesses today are presented with the conundrum of reducing costs by outsourcing to low-cost countries while also trying to achieve end-to-end visibility and total transparency. While capitalizing on cost-savings opportunities and creating a workflow of lean production, it is important that companies realize the magnitude of each consequence that could occur if disaster were to strike. Ultimately, the strategies supply chain managers implement for sustainability and success are only as effective as they are resilient.