Stephan Schmitz/theispot.com
Conventional methods of managing supply chain risks are not enough in the face of increasing disruptions from geopolitical events such as trade wars, sanctions and armed conflicts. A three-part framework for understanding geopolitical signals through scenario planning and risk monitoring, anticipating risks by creating flexible options, and quickly adapting to disruptions can help companies protect their supply chains.
The Conventional Playbook Supply chain risk management – designed for natural disasters, supplier failures and short-term market volatility – fails in the face of persistent, politically motivated disruptions such as trade wars, sanctions and armed conflicts. As maneuvers by national leaders threaten supply chains, global companies struggle to develop effective responses.
At the heart of the challenge are high levels of complexity and uncertainty. Long-standing U.S. trade policies have been disrupted and become more unpredictable; Acts of war or terrorism can upend leaders’ assumptions about security risks overnight. The scale and complexity of companies’ supply chains make it difficult to predict the impact of such events on their networks. In this context, it is essential that companies make more systematic efforts to understand, monitor and manage geopolitical risks.
Companies can approach the same risks in different ways. There is no single solution or guaranteed result. But the companies we studied have one common practice: They have – or strive to have – end-to-end visibility into their supply chains. They prioritize understanding the contributions and risks to their suppliers and customers at all levels. Although they may have an incomplete view, given the difficulties of obtaining information from outside suppliers at the next level, they do their best to stay well-informed, create new options to enable flexibility, and then make necessary adaptations to their supply networks as necessary. (See “The Three Pillars of Supply Chain Risk Management.”)
We have developed a three-part framework to help managers structure their thinking about constantly changing conditions. The framework, derived from our study of 13 multinational companies, offers a guide to help them understand geopolitical signals, develop strategies that anticipate and mitigate supply chain risks before they materialize, and respond to events on the ground.
References
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