Terror threats in Europe to cargo thefts in America: A roundup of 2016’s global supply chain risks
In 2016 glo...
A new report released by BSI (British Standards Institution) has detailed the major supply chain risks encountered over the course of 2016.
In 2016 global supply chains continued to face a range of security, social responsibility, and business continuity risks, with many of these issues provoked by one another. BSI noted multiple incidents that started out as a security, social responsibility, or a business continuity risk that cascaded into other supply chain issues.
The European migrant crisis is perhaps the best example of a type of event that began as a single security risk, before building into a business continuity disruption as countries imposed border controls, which in turn was exacerbated by blocked migrants looking for work, often falling victim to forced labor in certain nations.
BSI’s Global Supply Chain Intelligence Report provides an overview of the top supply chain threats and trends by region to help organizations increase their visibility and understanding of potential exposures within the supply chain.
Supply chain risks in Asia
In 2016, governments in Asia responded to increasing levels of supply chain risks, but many policies were merely reactive and often led to further threats to the integrity or continuity of the supply chain. BSI observed a shift in labor strike threats in China in 2016, driven mainly by concerted government efforts to limit strikes in the country following years of increasing labor disruption. Labor strikes still occurred in large numbers across China last year, but the number of strikes dropped in 2016 for the first time in recent years. Strikes at factories dropped by 31 percent; with two-thirds of provinces – including major apparel, consumer goods, and electronics production hubs – witnessing a decline in manufacturing strikes. An emerging area of concern is the growth in strikes in the logistics sector, including trucking, shipment processing, and delivery, which rose more than fourfold from nine incidents in 2014 to 40 last year.
Asia also saw an increase in labor rights concerns in Bangladesh in both the readymade garments (RMG) sector and in other industries. A December 2016 survey of the Dhaka slums found a far higher incidence of child labor than previous government studies had suggested, with 15 percent of children employed in formal and informal enterprises. Additionally, the survey found that a significantly larger proportion of children were employed in the formal RMG sector than had been previously believed. The study also documented abusive practices in garment factories that employed children. Over 37 percent of girls reported being forced to work overtime, while children employed in the formal garment sector earned only half the national minimum monthly wage for garment workers.
Supply chain risk in Europe
BSI recorded notable shifts in cargo theft trends and tactics across Germany and Italy in 2016. An increasingly high rate of cargo theft plagued freight shippers in Germany – it’s estimated that nearly half of all cargo truck thefts were incidents in which thieves slashed into the tarpaulins of trailers to steal cargo, a common theft type due to the widespread usage of soft-sided trailers in Europe.
Europe also experienced significant terrorist attacks in Nice, France in July and Berlin, Germany in December, along with dozens of counterterrorism arrests across Europe in 2016. Those attacks in particular also underscored the threat that terrorists will exploit the supply chain to perpetrate attacks. In both cases, Tunisian men linked to the Islamic State in Iraq and Syria (ISIS) used cargo trucks to ram into crowds of civilians. The Berlin attacker even perpetrated an explicit disruption of the supply chain before the attack by hijacking a Polish tractor-trailer carrying a shipment of steel beams. ISIS-linked plots involving similar timing and tactics are likely to continue challenging European security into 2017.
In Turkey, a faction within the military launched a failed coup against the reigning Justice and Development Party (AKP) government on July 15, 2016, leading to significant security and business continuity impacts in the short and long terms. The Turkish government’s response to the coup attempt has exacerbated security and business continuity threats in the country. Days after the coup, the government began widespread purges of numerous government departments and agencies across virtually every ministry, as well as the military, police, and intelligence services. There have been 100,000+ officials removed from public duty, 70,000 investigated and 32,000 arrested in total.
Supply chain risk in the Americas
Supply chains in the Americas faced a wide range of risks related to security, corporate social responsibility, and business continuity in 2016. Cargo theft remains a main concern for the Americas with the most dramatic increase in cargo theft rates in Rio de Janeiro last year. Already the second largest hotspot for cargo theft in the country, officials in Rio de Janeiro reported a total of 9,870 cargo theft incidents in 2016, 36 percent more incidents than those recorded in the state in 2015. The year-over-year increase in cargo theft incidents in both Rio de Janeiro and Sao Paulo, combined with minimal efforts to curb the rate of theft, suggests that Brazil could see another year of increased cargo theft in 2017.
BSI also recorded varying degrees of improvement in corporate social responsibility protections in Latin America in 2016. The BSI SCREEN Intelligence Team reduced the rating for the threat of child labor in both Ecuador and Panama due to each country’s sustained efforts to drastically eliminate the problem. In Ecuador, the government reduced the rate of children working in the country from the 16 percent recorded in 2007 to now less than three percent, with Panama succeeding in reducing the rate of child labor in the country to about four percent, a number that represents a 50 percent reduction since 2012. Although most countries in Latin America improved upon their corporate social responsibility record, some nations, particularly Peru, failed to make much headway last year.
While the number of supply chain terrorism attacks in 2016 remained nearly level with the previous year in the Americas, the relative targeting of the supply chain increased. The proportion of terrorist attacks involving supply chain targets rose 16 percent compared to terrorism attacks that did not target the supply chain. In addition, supply chain terrorism attacks were more widely distributed than in any previous year, with 38 percent more countries suffering attacks. The top 10 countries for supply chain terrorism incidents accounted for $664 billion worth of global exports, including $96 billion of exports to the United States, highlighting the significant volume of international trade at risk of disruption by terrorist groups.
What lies ahead?
In 2017, BSI expects continued threats of cargo theft and drug smuggling in the Americas and Europe, protests over wage and other labor issues across Asia, and persistent risks of terrorism, including terrorist targeting of the supply chain. New initiatives to address security, social responsibility, and continuity risks in many regions will require close monitoring to assess their effectiveness at the ground-level.
NTT DATA Services, Remodelling Supply Chains for Resilience
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.
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.”