Supply Chain Frontiers issue #47
What risks will threaten supply chains over the next five years or so? As new risks emerge and familiar ones resurface, companies need to keep abreast of the changes that can unseat even the most well-run supply chain. The outlook for potential disruptions was one of the discussion points at a recent MIT Center for Transportation & Logistics (MIT CTL) symposium.
More than 30 organizations attended the Advancing Supply Chain Risk Management: Emerging Challenges and Strategies symposium, which took place on the MIT campus, Cambridge, MA, US, on October 10, 2012. The event was co-organized by MIT CTL and the Supply Chain Risk Leadership Council (SCRLC).
Later this year, the SCRLC plans to release a white paper on emerging supply chain risks. Meanwhile, a working group at the Council has put together a preliminary list, which was discussed at the symposium. The discussions are summarized below.
Population growth. World population passed the 7 billion milestone last year – a mere 12 years after it surpassed 6 billion. The United Nations estimates that the figure will be 10 billion by the end of the century.
Although this is a long-term trend, the effects are now being felt in terms of resource and infrastructural constraints. Also, operations folks need to monitor demographic implications. China’s aging population, for instance, will make it more difficult for that country to compete for manufacturing business.
Scarcity of resources. This threat is related to the above trend, but is complicated by geopolitical factors such as which countries own the sources of water and key minerals that are critical to manufacturing operations.
Civil unrest. Again, this is linked to population growth and the increasing pressure on the available resources. But there are more immediate risks such as the potential for labor problems in China. A number of issues are at play, according to attendees at the symposium. Chinese employees are becoming more open about issues such as working conditions. This is fueled, in part, by the expansion of a middle class with higher expectations than previous generations of workers. Also, China’s growth engine is slowing, and this could take away some of the wealth-creation opportunities that are important to the country’s middle class.
Environmental sustainability. This is a high-profile issue with which many supply chain managers are already grappling. As one symposium attendee commented: “We think sustainability is rapidly becoming front line for the food supply chain.”
Infrastructure failures. There are approximately 70,000 bridges in the United States that are categorized as structurally deficient, said an attendee. Similar problems are evident in the country’s highway and port systems. But infrastructural issues are by no means confined to America. Take, for example, the blackout in July of this year that left an estimated half a billion people in India without power.
The European debt crisis. This situation may appear too complex and distant to be on the supply chain management radar, but some companies are thinking about the possible operational fallout. Here is one example. A leading manufacturer currently sells low-priced goods in Africa and India where many consumers can’t afford to buy premium products. If the European crisis triggers a depression in that part of the world, the company could be forced to sell its low-end products to Europeans. This would have a major impact on its profit forecasts, which are predicated on a large market for premium products in Western Europe.
Fuel prices. An attendee observed that five years ago this was one of the top supply chain risks. It is one of those threats that has not gone away, and could flare up at any time.
Regulatory pressures. The sheer number of regulatory changes coming down the pike along with a lack of standardization between codes represents a significant risk for supply chains. “Regulators are not working together,” pointed out an attendee, and it is difficult to keep pace with developments on an international level. In many cases, even satellite offices in the countries concerned find it difficult to understand and interpret new national regulations, she added. Having to comply with multiple national trade security programs and disparities among rules covering aviation are two areas identified as particularly bothersome.
Talent management. Impending shortages of supply chain talent is an issue that recently has received much coverage.
How to monitor these threats – which tend to be global in nature – and how to evaluate the ones that pose a real danger to business operations are questions that many supply chain and risk managers have struggled to resolve.
The first challenge is recognizing the importance of working to identify emerging risks. It is more than enough for most firms to stay aware of the known risks, but putting plans in place to monitor trends and developments that may evolve into a supply chain risk is a tall order. Relatively few organizations have actively addressed this challenge, but the small number that have can offer some useful guidance. One organization reviews emerging risks on an annual basis, while other firms informally depend on the risk management community within the firm to scan current issues and ferret out potential risks to the supply chain.
This clearly is an area of risk management that merits more attention, and companies are wise to include it in their plans for managing risk.
For more information on the symposium, the work of the SCRLC, and MIT CTL’s work in risk management, contact Deputy Director Jim Rice.