From risky to resilient: How to achieve a strong supply chain in uncertain times

Some supply chain risks are predictable. Others, such as the blockage of the Suez Canal in 2021 or the disruption in the Red Sea, come out of nowhere. In today’s uncertain and fast-moving landscape, more organisations are using new technologies and partner networks to handle supply chain disruption and ensure business continuity.

A supply chain is only as strong as its weakest link. And in recent years pandemics, conflicts and natural disasters exacerbated by the climate crisis have left many supply chain leaders feeling exposed.

What disruptions are contributing to uncertain times?

Which risks are causing them most concern? Our new research, which is based on a survey of 500 business executives in the technology sector, finds that disruptive geopolitical situations, new regulations and cyberattacks are top of the list.

1. Geopolitics

Forty-one per cent of the business executives say that rising geopolitical tension is the top risk to their strong supply chain. This is 10 percentage points higher among executives in North America (51%) amid tension with China.

“Whether it's the Red Sea, the Suez Canal or the Panama Canal, all can be having issues at the same time, which has an impact on the global movement of goods on an ongoing basis,” says Michael Koralewski, Chief Supply Chain Officer at US solar module manufacturer First Solar.

And Arnd Hirschberg, Chief Procurement Officer, Transformation of Industry at Siemens Energy, notes that geopolitical risk has prompted his company to adopt a three-region supplier strategy for commodities, not to be over reliant on any single region.

2. Regulations

Businesses also have an evolving regulatory environment to contend with, warns Paolo Galli, VP of Group Logistics Operations at Swedish manufacturer Electrolux. “For instance, in Europe there are more and more regulations also connected to environmental aspects like deforestation,” says Galli. “All of these regulations will impose some limit in the way that you import a product into Europe, adding cost, complexity and slowing down the process.”

3. Security

Cyberattacks are third on the list of greatest supply chain risks, chosen by about a third (32%) of executives. This increases to 38% of executives in North America and drops to 27% in Asia-Pacific (APAC). This might be linked to the fact that organisations in the Asia-Pacific region reported the fewest known cyber incidents out of the regions in Deloitte’s 2023 Global Future of Cyber Survey – although Deloitte says that fewer ‘known’ incidents does not always mean that an organisation experiences fewer incidents overall.

Our own research finds that companies operating in telecoms and networks are most preoccupied by cybersecurity: 38% of the executives in this sector say that cyberattacks are one of the greatest risks to their supply chain.

Climate change is underpriced

Despite the existential threat posed by climate change, only 20% of the surveyed companies rank extreme weather events or climate change in the greatest risks to their supply chain, making it only the eighth most important. Consumer electronics companies are most concerned about this (27%). This suggests that many businesses see the threat of climate change disruption to their strong supply chain as less urgent than other risks – at least in the immediate term.

This view may change in the future. Climate change might have a less direct impact on the supply chain than a cyberattack, for example, but it increases the risk of drought, which lowers water levels in canals and can cause severe blockages and disruption.

For Jessica Hoffman Kipp, Senior Vice President of Supply Chain Markets and Logistics at US multinational HP, disruption of the value chain by climate change is a pressing concern. “We have to continue to watch what's going on with climate change,” says Hoffman Kipp. “A lot of our products are essential to daily life. It's so important that we don't let disruption around the world impact our ability to serve our customers’ needs and get product to them when they need it.”

How to increase supply chain resilience

Risks might be preoccupying executives, but just 20% say their supply chain is highly resilient to risk. What can they do to mitigate and manage some of these risks, and make their supply chain and logistics strong?

• Dual-source and near-shore: Dual-sourcing key components and near-shoring are two options for businesses that want to change the orchestration and location of their supply chain to overcome potential transportation and security issues.

Although just 7% of the surveyed businesses plan to near-shore supply chain and logistics operations significantly during the next 12 months, 46% are considering near-shoring to some extent. Our survey suggests that interest in this is higher among businesses that spend more than USD 1bn on their supply chain every year.

First Solar’s Koralewski explains the attraction of putting the domestic supply chain close to manufacturing plants as a way to streamline logistics and improve control over the sourcing and delivery of components. “Being in market and having everything as close as possible to that value stream is of utmost importance because it eliminates the risk of ocean freight and port issues,” says Koralewski.

• Increase visibility to reduce surprises: Other businesses are focusing on improving the visibility of their supply chain partners – particularly third- and fourth-tier suppliers. And they are gaining better insights through data and technology such as AI, so that if something goes wrong, they can quickly understand the consequences of supply chain disruption, down to the specific ships, orders and revenues affected.

Risk monitoring is enabling organisations such as US industrial multinational Honeywell to pre-empt possible value chain shocks in the event of an earthquake, for example, so the firm can act swiftly and decisively and find alternative sourcing arrangements. In this regard, collaboration with third parties is vital. “The biggest risks are those that surprise you,” says Honeywell’s Senior Vice President and Chief Supply Chain, Torsten Pilz. “That's why our strategy is to develop our supply chain so that we have as much visibility as we possibly can get. The more integrated we are with our supply base, the better we are integrated with our customers, which improves our ability to prepare.”

To learn more about how you can strengthen your own network, read our report, “The hidden power of supply chains: How supply chain and logistics can turbocharge performance in the technology sector”.