Risk-management systems and models lack common frameworks to capture and respond to risks emanating from geopolitical conflicts and climate change events. This needs to change.
Among the many learnings of the last two years has to be the realization that market Intelligence, the term, is an oxymoron. That there are forces far beyond the grasp of the advanced tools and applications used for risk mitigation – no doubt powerful and impressive – that can hit a market like a bolt from the blue.
Of course, the greatest of these forces has been the pandemic. We now know for certain that a pandemic can cause even the most advanced supply chain systems to sputter to a halt. But lately, the world is experiencing yet another one of the virus’ morbid powers in its ability to engender socio-political tension and wars.
The worldwide unraveling of civil, healthcare, and public welfare infrastructure during the pandemic years has seemingly caused geopolitical and societal differences to come to a boil. Russia’s Ukraine invasion, China’s political grandstanding, and Iran’s ongoing civil unrest are conflicts that refuse to go away. In response, new battle lines are being drawn.
The Indo-Pacific Economic Framework (IPEF), a U.S.-led initiative was launched in May this year with an apparent aim of reducing the Asian economies’ China dependence. I2U2, a quadrilateral grouping formed in 2022 has economic heavyweights like India, Israel, the United Arab Emirates, and the United States. Add to the growing list, where Russia and China are conspicuous by their absence, is the Quad, a non-formal alliance between the U.S., Australia, India, and Japan.
On its part, China has thrown its weight behind the Regional Comprehensive Economic Partnership (RCEP), reportedly the world’s biggest trade deal to date. RCEP went into effect in January this year and is apparently already transforming trade in the Asia Pacific for economies and businesses.
Then the specter of cyber-warfare is no longer limited to attacks against an enemy state.
Non-state actors have targeted businesses and government organizations worldwide at a greater rate and scale over the past two years. Globally, cybercrime-ransomware attacks shot up 151 percent in 2021, and 2022’s first-half ransomware volume exceeded those of 2017, 2018, and 2019 combined. Even if most such attacks are financially motivated, they can endanger human lives. Grim reminders of this are the recent cyberattacks on medical centers reported in Brooklyn, U.S., and Delhi, India that derailed critical services, putting the lives of thousands of patients in peril.
Therefore, it is critical that supply chain organizations view these events as a signal to update their planning and risk-management models.
An eye for detail
Considering the recurring supply-chain disruptions, a pertinent question to ask is: why have the existing Supply Chain Risk Management (SCRM) models and methods repeatedly failed to predict and timely address these disruptions?
Traditional SCRM methods focus on three primary areas[i] to assess risk: product design, supply chain data, and operational control that includes activating emergency response. There, however, is a lack of common framework for assessment of risks emanating from manmade disruptions and natural disasters such as labor tensions at ports or the 1986 Chornobyl disaster. This is despite a good deal of research work having been done in the last fifteen years about the subject.[ii]These frameworks do not, for example, consider political signals such as an increase in authoritarianism, capital flight, corrupt practices that allow for the exploitation of natural resources and human rights violations.
An improved SCRM system must therefore include the following features:
Geopolitical intelligence: For a more proactive risk management response, SCRM professionals could turn to emerging (and interesting) new fields like the discipline of geopolitical intelligence (GI). An analytical tool used to understand the possible outcomes of political events and developing trends, GI uses sources such as publicly available information, expert-level knowledge, and spatial data to assess risks affecting the supply chain.
Battle Bridge: The NSA did it about a decade ago. Today it’s well within the reach of any decent-sized organization. The democratization of industry-grade computing power and the accessibility of advanced digital tech has made it possible for most organizations to build war rooms that are almost omniscient. Supply chain organizations could take the help of these systems to assign, say, color-coded risk profiles to a supply-chain node to signal the level of risk.
Many such smart command centers have been built and used by governments and organizations in the last two years. The United Kingdom’s NHS and Singapore’s Ministry of Health worked with dashboards that helped them gather and coordinate resources in real-time during the pandemic.
These systems could also provide predictive data based on readings of consumer and industry sentiments and social and environmental deviations from the norms and provide guidance on the adequacy of risk mitigation plans.
Decoupling-ready: Finally, if we truly imbibed the lessons of the last few years, we would start creating multi-strand global supply chain networks, which will look very different from the single-strand global supply chain we have today. That will make it possible to have redundancy nodes in every regional hub to impart the organization the ability to decouple from a troubled zone at the first sight of conflict.
Building a truly responsive and resilient supply chain is far more difficult today than it was only a few years ago. Added to it is the problem of a lack of standardized framework for assessing risks that our advanced technological systems can see from miles away. But this also presents an unprecedented opportunity for the SCRM professionals to step up and start building a true risk-ready supply chain for the future.
[i]Ponis, Stavros &Ntalla, Athanasia & Koronis, Epaminondas. (2014). Supply chain risk management frameworks and models: A review.
[ii]Kleindorfer, P.R. and Saad, G.H. (2005), Managing Disruption Risks in Supply Chains. Production and Operations Management
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