Authored by Angelina Fadorsen
The pandemic has brought a heightened awareness to the need for companies to have effective and efficient plans for potential disruption.
While the conversation of managing disruption in supply chain management is nothing new, it finally has earned the attention many believe it has needed for the past two or three decades. Many cases over the last year have shown first-hand that how companies deal with disruptions can make or break their future. Although the pandemic may be considered a black swan event when it comes to disrupting supply chain, that should not discount the importance of effective risk management and properly implemented business continuity plans.
Failure to recognize and understand the risks your organization faces will likely lead to unnecessary disruptions and subsequent loss of profits. Even with the most structurally sound strategies in place, a supply chain company is destined for failure if it lacks a fully completed risk assessment and disaster plan.
Supply chain disruptions can come in various forms that affect companies differently depending on factors such as their location, their product and their supplies. A disruption can be defined as an unforeseen breakdown, malfunction or failure of one’s production and/or distribution that negatively impacts the supply chain process. So what disruptions should your supply chain management company plan for? That question might not have an easy answer, but companies can begin protecting their supply chain by planning for the risks currently trending which, according to DHL’s Resilince360 Annual Risk Report, include the following:
Climate change has been a global concern and a growing risk as it relates to supply chain management for years. Climate change affects not only the intensity but also the frequency of large-scale natural disaster disruptions such as wildfires, tropical storms, droughts and hurricanes.
From climate change comes tougher environmental regulations heavily affecting many of the production and distribution channels of supply chain companies. There are countless rulings issued by the Environmental Protection Agency, as well as numerous federal laws, and a growing number of global regulations that are becoming more stringent.
Can you afford to keep emissions at the level they currently stand? Can you afford to lose a full day of power due to extreme flooding? Can you afford the switch to low-sulfur fuels to align with the International Maritime Organization (IMO) requirements? Can you afford to work at 1/8 capacity of your staff when evacuations are mandatory due to spreading forest fires? No one can completely eliminate the risks associated with climate change and environmental regulations, but everyone can effectively, efficiently and realistically plan for them with an appropriately implemented business continuity plan.
How much trade risk your company faces has probably drastically changed just within these last few years. Not unlike climate change, trade risk has been an area of concern within supply chain management for years, but the growing potential of a full-scale trade war has created even more uncertainty in recent years.
Continuing uncertainty and increasing tensions as it relates to trade policy have made it impossible to determine a clear-cut answer for how to reduce the risk a company faces, but at the same time, can you afford to leave it unaddressed entirely? Probably not.
If recent times have taught us anything, it is that supply chain companies need to consider restructuring their manufacturing and overall operational composition. By adopting an end-to-end structure, supply chain management companies create complete visibility into their organization’s operations, allowing them to become more agile and to make real-time decisions when it comes increased/stricter tariffs, additional trading regulations, border disputes, etc.
Generally speaking, we can prepare for political changes, as we typically know when potential disruptions are coming – an election year, a voting month, a shift in party power, etc. You can typically plan for these bumps in the road.
Additionally, it is important to remember that just because your country might not be experiencing political unrest, you can still be greatly affected by other countries or areas that are. That’s the nature of supply chain. You need to be prepared at all times. And as you know, the list of potential issues across the globe is a lengthy one, from trade wars and tariffs to economic struggles and various types of sanctions.
With this in mind, you should periodically adjust – or, at the minimum, revisit – your organization’s supply chain management goals and visions. This will help ensure that your company’s goals still align with and address the current political climate. Additionally, it will help ensure you have a well-balanced and mixed SCM plan that takes into consideration what is necessary for the organization’s survival in times of extreme political unrest – not just in your homeland but throughout the world.
Companies obviously cannot realistically and effectively plan for all possible disruptions – for instance, nobody saw a once-in-a-generation pandemic coming – but that should not interfere with adequately planning for those situations that may arise. With supply chain being an ever-changing industry, companies need to ensure they are continually monitoring, sufficiently preparing for, and taking appropriate action on the risks that affect them the most. Managing disruption is not a sprint, but a marathon. Proactive and continual risk management is the key to creating long-term success for any supply chain management company. Failure to do so will quickly create an insolvent company that is unable to recover from the lack of planning for risk and disruption.
How Baker Tilly can help
Baker Tilly is deeply experienced in the circumstances surrounding supply chain management disruption caused by the factors mentioned above, as well as other unforeseen situations. We can assist your company with risk framework, risk assessment, business continuity planning, regulatory compliance assessment and review, supply chain analytics and overall strategy, planning and optimization. Connect with a member of Baker Tilly’s supply chain team to discuss how our Value Architects™ can help you prepare now, for tomorrow.