Big picture 'key', says 2021 BSI supply chain risks report

By Sean Ashcroft
British Standards Institution's annual report on supply chain risks says uncertain world means quality decision-making has never been more important

The British Standards Institution (BSI) has published its annual Supply Chain Risks Insights Report, identifying the trends and associated risks likely to impact global supply chains in 2022. The theme this year is ‘resilience’.

The BSI is the UK’s national standards body, and produces technical standards - its famous ‘kitemark’ - across a variety of products and services. It also certifies businesses and provides standards-related services.

Prefacing the report, BSI global intelligence director Jim Yarbrough says that supply chain has dominated the past year, “from semiconductor shortages to missing milkshakes”, and he sees no let up in 2022.

Yarbrough stresses it has never been more important that supply chain chiefs make informed decisions. With this in mind, he says the latest report “has been framed around five questions we believe are fundamental to securing a successful and sustainable supply chain in 2022”. 

Those questions are:

  • Do you understand your suppliers?
  • How do you ensure sustainability?
  • How do you address change?
  • Are you adapting to challenges?
  • How do you unlock potential?

Do you understand your suppliers?

The BSI explores what businesses most need to know about their suppliers, against a backdrop of economic uncertainty and climate change. Yarbrough says firms need to know two things on this front. 

The first is whether a supplier makes a good business partner - “one open to working together to identify, address and mitigate threats along the supply chain”.

The second is whether they want to “grow” with you, “as a good corporate citizen and help you address the bigger issues we’re all facing in 2022 and beyond”.

Such advice might sound obvious, says Paul Raw, senior BSI supply chain security consultant, yet he reveals that the BSI “talks to a lot of organizations that don’t have a depth of insight into who their business partners are”. 

'You inherit the risk of your supply chain partners'

He adds: “There’s a saying: ‘You inherit the risks of your business partners’. Raw goes on to point out that some of the most high-profile shortages of the past 12 months – semiconductors, masks and PPE – were caused by over-reliance on a small number of critical suppliers.

Chris Tomas, BSI lead intelligence analyst on supply chain services and solutions, likens a business not knowing its supply chain as “being in a darkened room without a key”.

The BSI adds that it’s key for companies to know the ESG credentials of those in its supply chain, and gives the presence of polysilicon in supply chains as a case in point.

Polysilicon is used in the manufacture of solar modules. The BSI reports that 45 per cent of the world’s supply of polysilicon comes from China’s Xinjiang Uyghur Autonomous Region, which has come in for international criticism around allegations of forced labour.

“It’s important to know where the materials for green energy come from,” the BSI concludes.

How do you ensure sustainability?

With regulatory regimes evolving by the week – around everything from modern slavery laws to environmental regulations – the BSI asks how businesses can make supply chain decisions that not only shape business success but lead to a cleaner, greener planet.

It says if businesses don’t accommodate such changes in their supply chain before they are formally introduced, the alternative “is a mad dash or scramble, and nobody wants that”.

The report points out that if a business identifies ESG changes before they’re imposed then they can create competitive advantage and avoid unnecessary disruption. This, it says, will mean customers are “more likely to end up doing business with you”.

Such forward planning can be plotted out with the use of pilots, says Tony Pelli, BSI security and resilience practice director.

“Running pilots with a few key suppliers can be a successful approach, so you can understand what works for them. If you can pinpoint that for your most critical suppliers, you can roll it to other suppliers as well.” 

Holistic approach needed to ESG

BSI chief Yarbrough also calls on businesses to adopt an holistic approach to ESG.

He says: “It’s one thing for a CEO to be quoted in a press release about his organization’s climate change goals but an entirely different thing to truly understand how you realize these goals when you’re still air freighting goods across the world every day and moving production facilities from A to B. 

“There needs to be a practical approach to these ambitious goals: what are they and how do they trickle down throughout the company?”

This, he says, requires not only planning but also an understanding of the end-to-end supply chain within an organization “so they can align all of these moving pieces”.

Embedding such an approach requires management buy-in, says the BSI. “It can’t be treated separately from commercial or operational strategy. it needs to be baked into the company’s DNA,” it says.

How do you address change?

Given numerous geographic and sector pain-points, how can businesses address change, the BSI asks.

Many problems arise because companies do not understand where the pain points are within their supply chain. 

“With factories, distribution centres, shipping, port handlers, agents and sub-contractors, there are so many variables,” says the BSI.

It says a crucial first step in identifying pain points is to understand the dynamics of the supply chain, and gives as an example the colossal disruption caused by Covid-19 pandemic.

Identifying supply chain pain points is key

“Consider this,” it says. “The majority of global trade is East to West – manufacturing in the East, consumption in the West. So for a nation like Vietnam, which exports as much as 40 per cent of its finished products to the US, the pandemic changes everything. 

“Add to that the inter-regional transhipment from Vietnam to the big ports in China, and then from China to the US or Europe, and you can see the scale of the impact.”

Another pain point, it says, are the hugely inflated shipping costs from East to West, which are up by as much as 650 per cent on pre-Covid rates. 

Having identified pain points in the supply chain, the report urges businesses to “gather effective and timely information throughout the supply chain”. This, it says, involves asking questions, such as 

  • Where is the product? 
  • How is it being transported? 
  • What are the temperature control elements? 

The BSI believes best-in-class technology is an important factor here, and gives Blockchain as a possible way to achieve supply chain transparency. It says such tech can “manage the risk of diversion, counterfeiting and products entering the black market”. It adds that such data is “incredibly valuable when it comes to mitigating risk, and empowering business leaders to make timely and effective decisions”.

Are you adapting to challenges?

How firms adapt to the convergence of multiple business challenges is another key question the BSI says needs answering for the good of supply chains.

Convergence is very much the watchword here, it says: “Business continuity, sustainability, CSR and security teams need to be working together on the same challenges as there is a convergence of these challenges.” 

It adds organizations that adopt such an approach “will be the ones who find the best solutions”. 

Security is given as one such challenge.

Supply chain disruption 'can lead to security issues'

“Data and analysis show that whatever the sector or geography, business continuity disruptions can lead to security issues.” 

For example, staff shortages leading to goods piling up in overflow warehouses.

“Suddenly,” the report says, “valuable goods are being stored in facilities that haven’t met the same security criteria that existing established facilities have in place.”

In such circumstances it’s just a question of time before criminals identify these weak points, it says. 

ESG issues can also quickly morph into security challenges, the BSI stresses: “Take last year’s social unrest in Nigeria. What started as a series of protests over police violence quickly developed into nationwide anti government protests. 

“Parallel to this escalation was an increase in cargo theft, as criminals targeted the weaker security environment. In 2020, cargo theft accounted for a third of all recorded theft in Nigeria.”

The BSI concludes by reminding businesses that no business challenge “happens in a vacuum”.

How do you unlock potential?

The BSI’s final question pivots around the need to identify next year’s key emerging trends, with a view to unlocking the potential they offer.

As examples it gives the changing US political landscape and Brexit.

“These have triggered a massive change in trade agreements between nations. From a supply chain perspective, it’s essential organizations have a clear insight into these dynamics.”

It offers tariffs on imports from non-US companies as one such dynamic. 

“Suddenly, the whole landscape shifts,” it says. “What was a good-quality product at a good price starts to look very different, and on top of that the tariff is being passed onto the US consumer.”

The BSI argues that such shifts in trade policy are contributing to the continuing shipping capacity crunch. 

“Imposing duties as high as 221 per cent on imports discourages new capacity for freighters and importers, and raises shipping costs.”

Supply chain sustainability 'now front and centre'

As for sustainability issues - such as decarbonization and deforestation - Yarbrough says these are putting accountability “front and centre of the supply chain not only at the customer level but also at the organization-head level”. 

He says that, as a result, organizations must adapt to sustainability regulations quickly and understand their supply chain in ways they haven’t done previously.” 

The BSI says it has sensed a drive among businesses towards decarbonization, with regards to the production of energy and food, as well as to transport and the built environment. 

“Businesses understand the need to have a clear understanding of their own impact and to plan better to drive change,” it says.

Concluding, the BSI report says: “The ongoing pandemic, irreversible climate change, evolving regulatory regimes and the convergence of multiple business challenges mean there are difficult decisions ahead. 

“With supply chain firmly in the public spotlight, these decisions have never been more critical, or scrutinized.”

 

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