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August 29, 2022

What is the next threat we can't see yet?

Addressing the issue of supply chain resiliency


Global pandemic. Container shortage. Microchip shortage. Backed up ports. Semi traffic jams at distribution centers. War in Eastern Europe. Cyber threats. Spiking gas prices. Inflation.

What's next?

Over the past couple years, you've probably asked yourself, or the universe, this question. In frustration or even exasperation, more than a few times. Surely, someone has developed some algorithms to help us predict what doomsday events are most likely to hit us next. Or, more specifically, what will the next big supply chain disruption be? Let's look at a few possibilities.

Natural disaster

We're seeing a lot of these lately. You've heard about the effects of global temperature rise, which is leading to shifts in weather patterns, as well as their escalating severity. Hurricanes, wildfires, massive floods, earthquakes: these are all events that happen every year. We can predict, to some degree, that some will occur, even narrow down where they might ultimately do their worst. But a five-day heads-up regarding an impending hurricane isn't enough time to revamp your entire supply chain. Even if it were, a shift up the coast in the eleventh hour could be the difference between seasonal flooding and losing a critical laboratory or manufacturing plant.

Geopolitical crisis

The war in Eastern Europe is reminding industries and markets the world over just how interwoven and interdependent global trade is. Countries find themselves in moral dilemmas: do they continue feeding their people, or do they try and blunt an aggressor’s destructive actions by breaking off business relations? Political tension exists on every continent and, as we're seeing, those differences can accelerate into conflict, often for irrational or illogical reasons. Hard to predict if or when that will occur, and once it does, it's nearly impossible to speculate on how long it will last. If key members of your supply chain are housed in such regions, you're at risk.

Inflation

This has certainly been a threat, and lately even more than a threat. In a recent article Pierre-Francois Kaltenbach, a senior managing director at Accenture discussed the growing "correlation between supply chain disruptions and inflation," saying it is even greater now than before the pandemic.

Will this be the next big blow to global trade? Could be. Inflation is not a single factor, but rather the result of a number of forces in the economy. Commodity price increases lead to food costs going up. Gas price increases affect the cost of shipping. Shortages of key materials make so many of the common everyday products we buy more expensive. And our efforts to move toward more sustainable and environmentally friendly lifestyle drives up the prices of the commodities required to power that movement.

Health pandemic

We know what this looks like. Or we know what it can look like. Pretty grim. Its primary impact has been, of course, human life. But the other effects have also been quite damaging. What has made the COVID pandemic so devastating is that people simply didn't know how to proceed. It affected how everybody worked, purchased, socialized and misbehaved. This was new territory for most everyone. It was a cascading stream of unknowns, making it hard to predict supply and demand of anything. And supply chains will be recovering from it for some time. Unless, of course, we get hit with another super contagious virus or something else we have no idea how to respond to.

All of the above, so be prepared

All of these, and others—cyber-attacks, union strikes, unemployment, shifting employment—are credible threats and early "favorites" to derail the global economy and community in the not-too-distant future. Even some that don't on the surface seem like "global" problems. A union strike at one facility in one region might be labelled a "local conflict." But if that facility makes a critical component for products in a range of industries, well, suddenly it's a domino that could have troubling ripple effects.

Chances are, though, the next big disruption will be a series of events or factors, as opposed to just one. The one big thing will more likely be the one big "final straw."

We need to be prepared for all of these, and if possible, a few we haven't yet imagined. So, how do we do that? There are several ways to go about it, but the recurring theme is "be proactive."

In an article titled Supply chains: To build resilience, manage proactively, McKinsey & Company suggests, among other things, creating a digital Twin, a virtual twin of key parts of your supply chain, to simulate how it would respond to different forms of disruption. The piece went on to suggest creating what-if scenarios to assess weaknesses and the ability to react.

Accenture and Massachusetts Institute of Technology collaborated to develop a resilience stress test for supply chains "for assessing operational and financial risks created by major market disruptions, disasters or other catastrophic events."

Greater visibility, on many levels

While we don't claim to have a crystal ball for disruption, we can gain greater visibility into our own supply chains. And those of our suppliers, as well. Visibility helps us get ahead of shortages and gives us time to mitigate the effects of rising prices.

We can't predict what tensions will ultimately lead to conflicts around the globe, we can expand our global network of suppliers, diversifying our connections and relationships in different and less volatile geographies. Fostering collaboration with supply chain partners is a step in the right direction. As is being part of the Elemica Network, a community of global players, any of whom could become key partners if and when a company needs to diversify its sources.