Procurement, sourcing, and risk teams need to widen their risk aperture and prioritize continuous monitoring of geopolitical and location risks says Atul Vashistha, Founder and Chairman of Supply Wisdom. He outlines why it's time to transition from periodic risk evaluations to real-time risk intelligence and include operations, ESG, compliance and Nth parties.
As global citizens, our hearts go out to the people and communities directly impacted by the Russian invasion of Ukraine. As procurement, sourcing and risk leaders, we must face the challenge of understanding in real-time how the trickle-down effects of the war will impact our global supply chains in order to minimize disruptions.
Between increasing prices, sanctions and bans, shipping disruptions and more, the impacts are widespread. Here’s what to expect and how full-spectrum, real-time intelligence can mitigate the growing supply chain disruptions.
A Glimpse Into Today’s Supply Chain Crisis
Ukraine is a leading exporter of raw materials, chemical products and machinery. Russia is a major supplier of fuel and energy products, as well as crucial metals. All of this has a large influence on the global supply chain.
Germany, for example, is especially feeling the burn. Its dependence on Russia and Ukraine has slowed down its manufacturing production. Major German companies such as BMW AG, BASF SE, and ThyssenKrupp AG have all warned their businesses will be hit due to rising energy costs and inflation.
A primary supply chain problem lies in semiconductors. More than half of the world’s neon -- a critical gas in semiconductor manufacturing -- is produced in Ukraine. With production there at a standstill, the semiconductor gap that began during the pandemic is expanding. Everything from cars to smartphones is being impacted.
On the transportation front, Russian forces are blocking shipping routes and forcing Ukraine to close ports. As ocean congestion builds, logistics firms are pausing services – causing air freight rates to increase. Backlogs and delays further complicate the situation as companies try to maintain continuity.
Unfortunately, many businesses become aware of their weak links when it’s too late to avoid disruptions. In such a rapidly evolving risk landscape, leaders need a current and deep understanding of their supply chain risk landscape. Resiliency requires the early warning that continuous monitoring and real-time risk intelligence on supply chain risks – including geopolitical and location risks – provides.
Geopolitical and Location Risks in Supply Chain Management
At the same time that supply chains are increasingly globally interconnected, the global geopolitical risk landscape is becoming more complex. Similar to what we saw in the Cold War, we are approaching another repositioning of alliances and partnerships, such as Ukraine’s application to join the European Union. This changing landscape requires procurement, sourcing, and risk teams to widen their risk aperture and prioritize continuous monitoring of geopolitical and location risks.
Both the pandemic and the war in Ukraine have exposed the fact that many companies lack deep and current visibility into supplier operations overseas – especially suppliers of suppliers or Nth parties. When geopolitical tension rises or a location risk such as an extreme weather event unfolds, these businesses are forced to react after the fact. By then, the damage is done, and it’s too late to proactively mitigate the risks.
Another long-term risk to consider is the impact of sanctions on suppliers and partners. China, for example, has stated it will not join in the West’s sanctions on Russia. This poses the question; will Russia try to get around the sanctions by funneling their wheat and other resources through China? And if one of America’s largest trading partners is not willing to align with these sanctions, how will that affect commerce? Will sanctions be expanded to those who are supporting Russia?
Today’s technology makes continuous monitoring a reality. Imagine the ability to quickly assess the risk of a third party without having to spend months completing a lengthy assessment questionnaire. The most advanced solutions leverage automation, artificial intelligence, and data science to provide real-time risk intelligence making this possible today. Unfortunately, most companies continue to rely on legacy outdated practices that are unable to keep up with the pace of today’s rapidly-evolving risk landscape.
The Key to Resilience: Real-Time Risk Intelligence
Many procurement and sourcing teams are making critical decisions based on point-in-time assessments with risk data collected months ago. This data is quickly stale and fails to provide an accurate view of today’s risk landscape. Adding to this shortcoming is the limited view of risks covered by these assessments. The data typically only covers financial and cyber risks – leaving geopolitical and location-based risks completely out of the picture.
It’s time to modernize our approach. Avoiding supply chain disruptions requires that global businesses do two things.
Firstly, it’s critical to transition from periodic risk evaluations to real-time, risk intelligence as point-in-time data is quickly stale.
Secondly, the aperture of the types of threats monitored must be widened. Geopolitical and location risks are only the tip of the iceberg. Without visibility into operations, ESG, compliance, Nth parties and more, businesses are unnecessarily exposed.
The Road Ahead
Volatility is on the rise. No matter how the war in Ukraine pans out, the fact is geopolitical tension and location-based risks are increasing.
Sourcing and procurement must remain agile. Review your risk management strategy and ensure it prioritizes real-time, full-spectrum risk intelligence. Seeing the full picture as it changes in real-time and all its interdependencies is crucial for building and maintaining resiliency.