Welcome to a blog post series on Exiger’s fight to secure supply chains, sponsored by Exiger LLC. In this series, we will explore the ongoing efforts of Exiger to lead the discussion and enhancement of Supply Chain Risk Management. In Episode 2, I visit with Kim Lee, Associate Managing Director who focuses on risk and compliance, and Nick Wildgoose, a Consultant at Exiger. We discuss supply chain issues in the manufacturing and consumer markets.
We began with some of the key challenges in this sector. First, the manufacturing sector is incredibly diverse. It can be from electronics, automotive, clothing, and food, which are all vastly different, but a common denominator is the need to be cost-efficient. This makes cost-efficiency relevant to all in the supply chain. Over the past few years, Lee noted that she has seen supply chains in manufacturing and consumer sectors challenged “like never before with well-accepted practices put to the test.”
Moreover, from the macroeconomic perspective, COVID restrictions have disrupted every part of our supply chain, including air, ocean, and land freight, resulting in shortages.
Further, there have been factory shutdowns and labor shortages, which have impacted supply chains. The second type of macroeconomic factor is geopolitical. “The Russian invasion of Ukraine Russia is front and center of everyone’s mind, but there are also the China-US trade wars. In Australia, there are growing tensions between Australia and China, which has resulted in shortages in the supply chain to different degrees. These have been striking at the heart of the entrenched supply chain policy of centralizing distribution.”
Wildgoose noted that while most supply chains had responded to these issues, additional costs have been associated with the results. One of the biggest challenges is the cost of more thorough due diligence in looking at supply chain partners below tier one. This means understanding the multi-tier nature of your supply chain is critical. Before COVID-19, the only criteria was generally cost. But was, Wildgoose noted, “Suddenly COVID comes along, and you can’t operate your manufacturing lines, your consumer, sector stores without PPE, and suddenly it’s become strategic. It would be best if you also reassessed your risk management aspects. I think the other thing that companies have realized is that they need technology and data to look at this better, bring together the silos across the organization, and link up their approaches.”
Lee added that it is “a perfect time now for organizations to revisit their supply chain, risk management framework and ensure that it is fit for purpose, well communicated and understood.” This will help organizations in the current geopolitical environment manage the increasing expectations from consumers and regulatory expectations that continue to be challenging factors for manufacturing and the consumer sector. She added, “does your organization understand how far down the supply chain they have evaluated risks?”
Moreover, your organization should have a clear framework that sets out what you want to achieve. This should incorporate your risk appetite and tolerances, particularly in countries with a high perception of corruption. Other key risk areas include modern slavery and resilience, and operational efficiency. Having such a framework is important to ensure that everyone in your organization understands where the company stands and how to approach a supply chain risk management program consistently and coherently. Lee raised another issue which is around technology. The effective use of technology is fundamental to the success of your supply chain risk management program. With thousands of suppliers, you need to understand your risk profile.
We concluded by looking down the road at where supply chain risk management for manufacturers might be headed. The risks in this area are expanding. It could be cyber-attacks directed at your organization through a supply chain or ransomware claims which could bring your organization to a grinding halt by depriving your organization of key raw materials. Another key area is around climate change reporting risk, aka climate risk, from a supply chain point of view in the consumer and manufacturing sectors. Wildgoose said, “somewhere between 80 to 90%, quite often, of an organization’s carbon footprint is in its supply chain. Unless you understand your multi-tier exposure, how are the CEOs standing up to say, they’re going to achieve a net-zero?” Additionally, the financial community is looking at more disclosures around the impact of climate risk on companies. Indeed, the investment community, such BlackRock, Inc., have said that “sustainability is a competitive material issue that needs to be addressed as well.”
Join us tomorrow as we spotlight supply chain issues in IT and telecommunications.