Managing global supply chain risk in uncertain times

Global supply chains power the world. Products that we purchase start with raw materials processed through an often-complex global supply chain until they reach the consumer. Regardless of how brilliant the product design, engineering, and marketing, the consumer will be disappointed if the supply chain is not able to deliver that brilliant product in good condition when and where it is needed. Managing this constant change is all in a day's work for supply chain professionals, but success doesn't happen without thoughtful planning. Understanding the potential risks in your global supply chain requires knowledge of both industry changes as well as macroeconomic, political, and social issues.

IHS Markit has partnered with CSCMP (The Council of Supply Chain Management Professionals) and the University of Tennessee, Knoxville's, Global Supply Chain Institute (GSCI) to produce a tool that improves market intelligence, decision-making and risk mitigation efforts for supply chain professionals. The EPIC Global Supply Chain Readiness Index (EPIC) employs a data-driven approach that combines University of Tennessee's quantitative analysis with IHS Markit's rich on-the-ground qualitative insights from 64 countries around the globe. This tool is designed to provide foundational and contemporary input to supply chain leaders to drive more informed decisions about how to best operate in these markets.

Through the ongoing development of the field of supply chain management, professionals have become more attuned to the criticality of factors such as risk and readiness to a successfully managed supply chain. This is no easy task as supply chain risks for any company come from different areas and are becoming increasingly complex as companies get larger and more vulnerable. Common causes of risk are disruptions and delays due to increased transportation cost, damage, unexpected returns or failure to sell, inventory issues, network disruptions, and supplier issues, including high cost or loss of supplier. In addition, broader non-business-related disruptions can be caused by natural disasters or geopolitical issues. Some of the major concerns highlighted by shippers and carriers at the Council of Supply Chain Management Professionals (CSCMP) 2019 EDGE conference were:

• Brexit in the UK
• Reliability and capability of small suppliers
• The trade war between the US and China
• Natural disasters and their impacts on coastal areas and supply chains in general
• International Maritime Organization (IMO) 2020 sulfur regulation and oil cost increases in general
• Labor shortages in the European Union

Of course, this list of concerns is not static and can vary considerably by company and context. If your supply chain includes France, then social unrest from pension reform or fallout from the recently imposed digital services tax may be your issuedu jour. Brazil and India will likely struggle with structural reforms creating additional uncertainty around investments. Rising protests over social inequality and economic austerity programs may impact supply chains across Latin America, North Africa, and the Middle East. In Europe, Brexit may not cause too much uncertainty in 2020 as the UK remains in the EU single market in 2020; but longer-term may be an issue. Additionally, some supply chain threats know no border.

What is clear is that we're living in a VUCA (volatile, uncertain, complex, and ambiguous) world.

The coronavirus disease 2019 (COVID-19) disrupting global supply chains in 2020 is a stark example of this VUCA world. Companies that rely on China for all or part of their manufacturing are most vulnerable, but the "bullwhip effect" from both plant closures and reduced consumption will ripple far and wide. Car manufacturers such as Fiat Chrysler and Hyundai shut down production lines, and companies from Apple to P&G have lowered profit expectations. As of this writing, COVID-19 is still evolving with new cases in China on the decline, but global cases on the rise. Public gathering places from the Louvre in Paris to schools in Seattle have been shut down, and travel restrictions around the globe are hampering global commerce. The resilience of global supply chains is being tested. Supply chain leaders are being tested.

Highlights from the report

The goal of this report is to provide information about supply chains in each region in the world, identifying their unique characteristics, to help the decision maker arrive at more informed decisions. Managers of global supply chains can use the framework developed in this report to help them assess their supply chain strategies, identifying the strengths, weaknesses, opportunities, and threats of the different regions in the world. This framework is termed the EPIC structure.

Several predominant themes that impact supply chain decisions emerge from the EPIC assessment. These include the following:

• Supply chains continue to undergo transition into the era of global, IT-enabled supply chains. This transition is fueled by political and technological innovations.
• Political and technological innovations continue to level the balance of economic power across the Americas, Europe, and Asia. The increasing turbulence in the global geopolitical environment is largely driven by this shift from the power structure of Western Europe and North America that has existed for much of the last 400 years.
• Emerging markets, particularly in Asia and Africa, are experiencing high economic growth rates, providing new consumer markets for finished goods. In all of these countries, the speed of development, changing volume requirements, and varying geographies, political structures, and transportation infrastructure are challenging issues.
• Emerging areas of opportunity for sourcing, manufacturing, and logistics to support regional and/or global consumer markets include Vietnam, Malaysia, India, Dubai, Panama, Chile, Colombia, Uruguay, Brazil, Mexico, Costa Rica, Poland, Czech Republic, Slovakia, Nigeria, South Africa, Kenya, and the southern and western regions of the US. In addition, many opportunities are just beginning to emerge in Africa, largely supported by infrastructure investment from China.
• The emerging opportunities in market, sourcing, and manufacturing locations have predicated changing trade flows that are shifting to highlight new areas of focus for assembly and logistics operations. In Europe, the center of gravity for trade flows has shifted from a western-oriented logistics network to one that is more centrally focused on the continent. In North America, flows are shifting from an east-west or west-east axis to a more south-north access as Mexican ports and manufacturing centers gain in prevalence.

Join The Global Supply Chain Institute, The Council of Supply Chain Management Professionals, and IHS Markit for the release of the EPIC Global Supply Chain Risk Assessment Report addressing all these complex situations within supply chain. Webcast: Apr 23, 2020 12:00 PM - 1:00 PM EDT Register now

Posted 17 April 2020 by Aleksandra Maguire, Associate Director, Consulting and

Kristyna Alexova, Senior Consulting Analyst, IHS Markit