Globalisation has multiplied supply chain risks, substantially making new risk assessment strategies a top priority for practitioners in procurement and supply chain jobs, an academic has warned.
Dr Jon Kirchoff, Professor of Marketing and Supply Chain Management at East Carolina University, cites data from Deloitte showing that 84% of the firms polled reported major global supply chain disruptions within the previous 12 months, with costs amounting to tens of billions of dollars every year.
Industry and academic experts, Kirchoff adds, have identified the most significant global supply chain risk facing companies currently: globalisation itself.
It has resulted in a massively more complex business model with new challenges and risks.
Disruptions can be natural (such as floods and earthquakes) or man-made (such as terrorist strikes and cyber-attacks), added to which is the fact that contemporary supply chains are more vulnerable to both because they’re composed of a far wider range of suppliers and are far longer than previously, traversing regions where both kinds of disruption are more probable.
Procurement professionals, from permanent team members to supply chain and procurement interims, should start, Kirchoff suggests, by dividing globalisation risks into those that can be managed swiftly at relatively little cost and those that will take longer to deal with at higher cost.
The aim is to develop a ‘cone’ of risks, comprising tiers defined by the time needed to manage them (days to weeks, months and, finally, years).
However, a shift from tactical approaches to strategic, proactive methods is crucial, Kirchoff maintains.
This will entail identifying root causes and long-term impacts of disruptions and prepares companies for handling them in the future.
Next, procurement managers should use a basic equation of risk: the likelihood of a disruption happening multiplied by its cost impact on the business.
Lastly, supply chain partners must be worked with to help devise and implement risk management strategies, using new tech solutions such as blockchain to improve connections between players in the chain and enhance trust and transparency.