May 17, 2020

Global supply chain risk grows

John Glen
CIPS Economist
Chartered Institute of Procurement & Supply
Dun & Bradstreet
Lucy Dixon
4 min
Global supply chain risk grows
The risk in global supply chains is on the rise, according to the Chartered Institute of Procurement & Supply (CIPS) Risk Index. The figure is the h...

The risk in global supply chains is on the rise, according to the Chartered Institute of Procurement & Supply (CIPS) Risk Index. The figure is the highest since 2013 and has been driven by increases in supply chain risk in Western and Central Europe, Eastern Europe, the Middle East, Latin America and Sub-Saharan Africa.

The index is produced for CIPS by Dun & Bradstreet economists, who track the impact of economic and political developments on the stability of global supply chains. The upward trend in supply chain risk is in part driven by a disintegration of the political consensus over globalisation, with the World Trade Organisation reporting an average of 22 new trade restrictive measures a month in its latest report.

This trend is clearest in Western Europe, where risk rose to 2.63 in Q3 from 2.60 in the previous quarter. The uncertainty around the post-Brexit relationship between the UK and the European Union has had a negative impact on trade and business sentiment in the UK and across the region. In the UK, the resulting currency volatility is having an immediate effect on British businesses with suppliers starting to push up prices in reaction to the weaker British pound. A brief stand-off between Tesco and Unilever looks to be only the first of many challenging negotiations for British procurement teams.

Elections over the next 12 months are expected to see gains for populist parties with France’s National Front, Italy’s Five Star Movement, the Freedom Party in the Netherlands and the German Alternative for Germany all sceptical of European integration and hostile towards free trade. An agreement between Turkey and the EU to manage the flow of migrants from the Middle East has seen some temporary border controls within the common market repealed this quarter, reducing supply chain disruptions. However, with the military situation in Syria worsening and anti-immigration parties gaining momentum, European supply routes remain uncertain.

Supply chain risk in North America remains static at 2.101, but both Canada and the USA have seen trade agreements with the European Union stall this quarter. Regardless of the result of the US election, both Donald Trump and Hilary Clinton have expressed concern about the Transatlantic Trade and Investment Partnership (TTIP), while in Canada the Comprehensive Economic and Trade Agreement (CETA) has been derailed by a regional parliament in Belgium.

Persistently low commodity prices, are deepening the cash flow crisis for oil exporters in Eastern Europe and Central Asia, the Middle East, North Africa and Sub-Saharan Africa, damaging payment performance and heightening risks for supply chains which pass through. In Eastern Europe and Central Asia, risk has risen to 5.424 from 5.396, following a failed coup in Turkey which is likely to see an increase in interference with businesses. Supply chain risk has also deteriorated in the Middle East and North Africa from 4.406 in Q2 to 4.413 in Q3, where civil war has all but eliminated international supply chains in certain countries. Finally, Sub-Saharan Africa continues to have the world’s highest levels of supply chain risk, increasing further from 5.544 to 5.558 with Nigeria slipping into technical recession and South Africa narrowly avoiding one.

Asia Pacific has bucked the trend this quarter with supply chain risk decreasing marginally from 3.424 in Q2 2016 to 3.415 in Q3. Australian suppliers, in particular have benefited from rising coal and iron ore prices together with an increase in national defence spending. In the short-term, Australian businesses are showing improved payment performance, but the country’s reliance on temperamental Chinese demand continues to pose risks.

Elsewhere in Asia, logistical routes have come under pressure. Super typhoon Meranti has caused disruption to flights, ports, rail schedules and power supplies in Taiwan. Winds of 150km/ have forced the temporary closure of two nuclear power stations but the country’s robust building code has mitigated against long-term disruptions. In South Korea, meanwhile, the world’s 7th largest shipping company, Hanjin Shipping, went bankrupt in August, reducing global shipping capacity by 3% and leaving a cargo as large as $14bn unable to dock. The bankruptcy is likely to have wide-ranging impact on trans-Pacific and Asia-Europe supply chains.

John Glen, CIPS Economist and Director of the Centre for Customised Executive Development at The Cranfield School of Management said: “Supply chain managers are facing a new wave of impediments to the flow of goods across borders.

“With international trade deals under threat around the world, supply chain managers must be as aware of political risks as they are of natural disasters and economic hardship.

“Skilled supply chain managers are adept at managing the short term supply chain disruptions but with supply chain risk returning to record levels, businesses must be continually vigilant in vetting their suppliers and preparing contingency plans.”

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.

The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.

A Multi-Vendor Sourcing Approach

“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.

“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.

But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?

“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.

Wielding Big Tech for Better Outcomes

So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry

“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality. 

“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”

Evolving Procurement Models 

From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view. 

“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.

“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”

“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”

But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?

“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.

The Challenges

These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.

On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.

Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”

He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”

As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”

 

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