Managing supply chains in the face of geopolitical uncertainty can be a challenge
By Brian Alster
The global economy has given rise to – and benefits – numerous enterprises. Despite recent events that call into question the effects and the future of globalization, big corporations around the world remain critically dependent on a global supply chain.
This intricate network of manufactured and service inputs – which often involve several countries simultaneously – can unravel amidst rising geopolitical uncertainty. Some of the recent uncertainty stems from disruption in U.S. foreign relations, as the White House posits a potential trade war with China over steel tariffs, or sanctions imposed on Russian aluminum. These actions will most certainly disrupt supply and distribution chains.
In fact, geopolitical uncertainty is a major concern for procurement leaders and C-suite executives today. A report released by A.T. Kearney and RapidRatings shows that supply chain risk management has climbed in priority among most companies, based on current geopolitical volatility. A majority of companies polled (78 percent of typical companies and 90 percent of those identified as “procurement leaders”) expect their procurement organizations to be given more responsibility for managing risk in the next two years. And geopolitical risk is a top-five threat in every region (except Asia-Pacific, where it ranks sixth) according to PricewaterhouseCoopers in its 2018 CEO Survey. Thirty-one percent of CEOs cited it as an issue in which they are “extremely concerned.” From guarding against supply chain vulnerability to avoiding costly disruption, using a data-driven approach to mitigate risk in the face of uncertainty is one of the best strategies a business can undertake:
1. Ensure a diverse supply base – Supply chain disruption is a matter of when, not if. Working with a diverse range of suppliers from various geographies can help protect companies against the unexpected, such as border disruption, natural disasters, political unrest and regional sanctions. This is currently playing out as global oil prices rise, due in part to sanctions impeding Iranian supply; an uncertain situation demonstrating the need for a diverse supply base.
Supplier diversity in terms of the types of businesses you work with – from minority-owned to veteran-owned businesses – also makes good business sense as these suppliers tend to be smaller and more agile, qualities that can often lead to innovation. Working with diverse suppliers can also help businesses comply with various corporate, federal and state requirements.
2. Know who you’re doing business with – In order to build and sustain reliable supplier relationships, you need broad and deep visibility into your company’s supply base. That visibility enables you to determine exactly who comprises the multiple layers of your supply chain – including parent companies, subsidiaries and their ties to other organizations. Using analytics and a data-driven strategy, enabled by technology, can reveal savings, untapped opportunities and unforeseen risks. By vetting suppliers up front, you can identify things like supply availability, lead times, and financial and operational risks, as well as avoid doing business with violators.
3. Analyze and onboard suppliers quickly and efficiently – On-boarding suppliers can be a complex process, requiring you to validate everything from whether the supplier is a legitimate legal entity with the proper tax and legal codes, to ensuring that the supplier is financially solvent. Validating vendors early in the process will increase efficiency, maintain operations and lower costs. Having an efficient vetting and on-boarding process helps companies pivot more easily during geopolitical uncertainty. Leveraging technology to streamline that workflow is one way to assure companies are able to support corporate guidelines for approving new suppliers.
4. Maintain an ongoing health scan – It is important to monitor your suppliers on an ongoing basis. Monitoring suppliers regularly will help prevent financial waste, production shortfalls and inventory excesses, while ensuring supply chain continuity, centralizing risk, and being proactive with your supplier relationships. Developing a corporate supplier program that supports ongoing health scans involves putting the right technology in place to act on the above methods and enable continued monitoring. Taking advantage of advanced analytics will enable businesses to set corporate guidelines within the system to ensure ongoing health, and gain visibility into supplier coverage by industry, such as oil and gas, and by geographical location.
In a year of unprecedented global political turmoil, geopolitical risk becomes more important than ever in evaluating the larger picture of a business climate.
Brian Alster, global head of Supply & Compliance for Dun & Bradstreet, is responsible for the strategy, product development, and sales efforts for the company’s Supply & Compliance product portfolio. Prior to this position, he served as the regional vice president, Financial Institution Sales for Dun & Bradstreet.