This article was originally published in Forbes September 7, 2020. We are sharing because it offers counsel on how to manage, evaluate, and modify complex global supply chains that have been disrupted by Covid-19.
In modern multi-tier supply chains, sourcing needs and production processes are often spread across hundreds of suppliers operating in multiple countries to maximize economic efficiency, usually at the cost of greater transparency and resilience.
Digital delivery Concept, logistic and transportation technology concept.Global business of Cargo freight.International import export trade
Market volatility caused by COVID-19, alongside sweeping regulatory changes, has driven companies across various industries to urgently re-evaluate their complex global supply chains to gain control of new and significant supplier risks quickly. Supply chain diversity is essential for successful business operations, but it’s critical that companies evaluate and understand the risk associated with current and potential suppliers in their physical and digital supply chains.
The vast majority of organizations struggle to assess risk beyond their primary suppliers (the companies they directly contract with) like what Foxconn is to Apple, such as leaving them exposed to risk factors associated with the many tiers of sub-suppliers that exist underneath primary suppliers. A provider of a key component could be bought by a foreign company, a business could introduce unethical labor practices; the potential risks are widely varied.
If companies do not find a new way to assess and react to fast-changing supplier risk, they will likely suffer further business disruption that causes bottom-line impact. Government agencies and the manufacturers that supply them are also at risk from economic and, in some cases, national security impacts, without clear and continuous visibility into supply chain risk.
Business Efforts to Control Risk
Many companies have taken several steps to mitigate supplier risk in recent months. Mostly as COVID-19 remains a threat, these efforts are imperative for a business to function with minimal interruption. These steps include:
Leveraging digital tools to facilitate more frequent and in-depth supplier risk assessment. A survey by PricewaterhouseCoopers of chief financial officers at U.S.-based companies in May showed more companies are planning to use automation in the supply chain in response to COVID-19.
Building an inventory of finished goods and raw materials to prevent future shocks and keep more products on hand for themselves and customers.
Simplifying manufacturing by focusing on their most important products to ensure output at factories that face pressure as some employees are unable to work.
There has been much talk about reducing geographic concentration in global supply chains, especially in countries such as China as sanctions imposed by foreign governments, like the U.S. and U.K., for example (i.e., Huawei 5G ban), increase and further dictate who companies can do business with.
Like Apple, electronics manufacturers have spent years working with suppliers in China because of its large, low-cost labor force, supplier infrastructure, and efficient logistics.
Due to this geographic reliance, it is not always easy for companies to identify the associated risks and relocate production to other countries as needed.
Building Resiliency in Supply Chains
Companies must make their supply chains more agile, flexible, and transparent from a risk standpoint to move beyond the crisis.
This means getting a high-definition picture of a company’s entire third-party ecosystem from end-to-end and identifying exactly where risk exists in their current supply chains and new ones they will create to de-couple from China. For example, Chinese companies issued over 3,000 force majeure certificates at the beginning of the pandemic, which resulted in ripple effects across the supply chains of many businesses that relied on those suppliers.
COVID-19 also has made continuous, proactive risk monitoring a necessity, including cybersecurity risks. A recent report from the World Economic Forum found that 50 percent of enterprises were worried about cyberattacks and data fraud due to a sustained shift in working patterns. The report recommended that businesses “establish a culture of robust cyber hygiene in the immediate term.”
Overall, there are many economic and national security risks that businesses with global supply chains must be aware of. Issues like trade friction with another country or hackers are almost guaranteed problems that a business needs to keep top-of-mind when evaluating its supply chain. Organizations that do not have full visibility into their supplier dependencies or relationships can face business/product failures if they are not careful. Monitoring your supply chain risk continuously through the use of new technology is the path to overcome potential disruptions.
One best practice example comes from Interos, which has created the first AI-powered, multi-tier, multi-factor third-party risk management platform which helps businesses monitor their complex, global supply chains in real-time and provide a clear, unprecedented view of supply chain risk. The platform leverages A.I., a graph database, and natural language understanding (NLU) to map out a company’s physical and digital supply chains, business relationships, and ecosystems.
By applying AI, Interos continuously monitors over 50 million Nth-tier suppliers and business partners globally across 85,000 data sources, processing 250 million risk events per month across five key risk factors – financial, operational, governance, geographic, and cybersecurity.
Since the pandemic began, Interos has experienced a 500 percent increase in inbound requests from prospective customers that include both Fortune 1000 companies and government agencies. This increase in demand for a product like what Interos offers is proof of companies becoming aware of their current blind spot and growing risk associated with complex global supply chains, which is certainly something that should top every executive playbook for the remainder of 2020.