The complex, hyper-connected nature of global supply chains makes them extremely vulnerable to a range of risk factors. In 2019, corporations experienced new levels of volatility in commodity and energy pricing, interest and exchange rates, and general international trading conditions. In 2020, things are likely to remain rocky.

The following factors are likely to disrupt supply chains in the coming year:

• Ongoing trade tensions between the U.S. and its major trading partners,
• Growing levels of nationalism and protectionism that restrict trade,
• Uncertainty surrounding Brexit and its wider impact on the European Union,
• Increasing supply-chain risks and costs due to climate-related events and legislative demands,
• Volatility in energy markets,
• Potential market corrections driven by record debt levels and rising interest rates, and
• Increased consumer pressure to improve sustainability and visibility across the supply chain.

Research shows that many businesses, despite being forewarned about these risks, are still tending to be reactive rather than proactive in their approach. A study by Russell Reynolds, a leadership and search firm, found 534 companies in near-unanimous agreement that a recession is likely to occur. Yet only 8% reported feeling that they were well prepared to navigate such a downturn. Similarly, while the top five concerns in the World Economic Forum’s Global Risk Report were all related to climate change, the subject didn’t make the top ten in a survey of business leaders.

As the rate of disruption increases across all industries, it’s imperative that businesses adapt quickly. They must optimize their manufacturing and distribution, and ensure that all suppliers are managing the inherent risk of each product, service or value-added activity they provide. In the face of increased volatility, organizations must be good at continuous improvement, transformation and reinvention.

Risk adversity presents a major threat. Businesses that ignore the disrupters and continue doing what they’ve always done will undoubtedly experience margin erosion and loss of competitive advantage.

A documented, end-to-end supply-chain risk-management program is critical to growth, profitability and corporate survival. Optimizing the supply chain from a risk, cost, cash, quality and growth perspective will help secure supplier relationships, prevent supply bottlenecks, and ensure your company is operating both legally and ethically. By taking a total value optimization approach to risk, business leaders increase visibility and enable measurable improvements across the global supply chain. Executives can quantify earnings improvements, identify operational and working-capital risks and opportunities, and develop a documented implementation roadmap for improvement.

Companies that set out to reduce risk while optimizing their supply chains experience four domains of value:

• Supply-chain digital design and decision making. Organizations can balance risk tradeoffs with the ability to model, optimize and simulate supply-chain network operations. In a digitally enabled supply chain, it’s possible to use real-time data to find the best transportation routes and inventory levels for the current state, and proactively prepare for potential supply-chain events. Contingency planning is made easier with the capability to run scenarios associated with disruptive events, and react quickly to new variables.
• Global manufacturing and distribution footprint optimization. In a volatile business environment, it’s critical that organizations scrutinize their global manufacturing footprint to ensure that each value-added activity takes place in an appropriately low-risk geographical location, to achieve the greatest possible competitive advantage.
• Sourcing optionality. Building in a higher level of optionality and de-risking is the first order of business, as companies react to geopolitical events and prepare for a likely economic downturn.
• Supplier risk management and transparency. Implementing an end-to-end approved supplier process and pre-qualification program to protect brands, reduce costs, minimize risk, increase visibility and drive improved supplier performance is critical in today’s uncertain world.

Uncertainty is here to stay, with risk factors likely to intensify in the coming year. A well-documented, end-to-end supply-chain risk strategy is critical to growth, profitability, peace of mind and corporate survival. If you don’t have a documented supply-chain continuity and disaster-recovery plan, you need to develop one fast. If you have one, you need to test it now.

Collin Ziemerink is executive vice president of industrial manufacturing and services at MainePointe. Neil Willings is head of supplier risk at SGS.