The global pandemic may finally be fading in the rear-view mirror, but its disruptive impact on global supply chains was an early indicator of our new normal. 

Rising geopolitical tensions, economic uncertainty and climate change will increasingly pressure logistics and procurement operations in coming years. These gathering clouds mean that companies and their supply chain leaders can’t relax their attention on resilience. Indeed, they should be redoubling their efforts to manage risks, build diversity and ensure the continuity of operations.

The war in Ukraine will continue to contribute to volatility in fuel and food prices for the foreseeable future. Yet the impact of that conflict on trade and growth would be dwarfed if tensions between the U.S. and China over Taiwan are ignited — a prospect that appears to be closer than at any time in decades. 

Rising inflation and interest rates add economic uncertainty to the mix; many countries are grappling with slowing growth and double-digit price rises. Unpredictable prices for materials and transportation represent a major supply chain risk for companies. 

Overarching is the long-term problem of climate change, which is increasingly interrupting production, affecting logistics and raising costs. The big Texas freeze that caused energy blackouts and forced semiconductor plants to close, heavy flooding in Malaysia that disrupted global chip supplies, and the massive rainfall that halted German river shipping  are just a few of the weather-related events that have recently hit global supply operations. The global frequency of natural disasters has jumped by almost threefold in recent decades.

Should You Appoint a CSCO?

In this environment, it’s crucial that companies implement a comprehensive supply chain risk-management strategy. Yet many continue to fall short in this effort. They may have implemented some elements of risk management, but lack a unified approach that makes supply chain continuity central to decision-making at every level. The time for excuses is over.

CEOs need to stop treating supply chain operations as a back-office function and appoint a chief supply chain officer. In addition, the chief financial officer should make supply chain integration one a core responsibility, pushing change from the top to break down silos. After all, the supply chain is the nervous system of the organization.

Every company should work to become certified for the ISO 31000 standard on risk management. While this doesn’t provide a detailed blueprint on how to manage supply chain risks, its principles and guidelines help organizations control risks and implement risk-based decision-making from top to bottom. No less importantly, the certification will give your partners confidence that you’re well prepared. Governance, risk and compliance (GRC) software can help embed risk-management practices and increase accountability.

Don’t Make Apple’s Mistake

Diversification of supply is fundamental to surviving amid geopolitical uncertainty. Over-reliance on one supplier or one country is a recipe for failure in the event of a conflict, a spike in trade tensions, or a natural disaster.

Apple is one of the world’s most sophisticated and successful companies, but it’s become over-reliant on China for manufacturing. The events of late last year, when workers protested COVID-19 policies at “iPhone City” in Zhengzhou, resulted in production delays and raised doubts over Apple’s risk-management plans. If Apple had a reliable strategic partner in another country, it could have ramped up production there and mitigated some of the impact. Since the problems at Zhengzhou, Apple has accelerated plans to shift production out of China to India and Vietnam.

Diversifying production locations isn’t just a numbers game; it relies on the quality and depth of supply in a given country. Look to partner with vendors in countries that have strong infrastructure, good access to sea shipping, and are free from major political or religious strife. That’s why Southeast Asian nations like Indonesia and the Philippines have become popular low-cost production alternatives in recent years. Bangladesh has become a global hub for garment manufacturing because companies can count on a deep well of suppliers that support the industry.

Smart Lessons From TSCM

One company adopting a proactive diversification strategy is Taiwanese chipmaker TSMC. It’s investing $40 billion to turn its production center in Phoenix, Arizona into a major supply hub for U.S. tech manufacturers. The move represents a sensible hedge against the growing risk of a conflict over Taiwan, while tapping into a shift in U.S. policy to encourage more domestic manufacturing of crucial products.

Risk management goes far beyond location. It should be applied to any variable that could disrupt your ability to get product to customers on time and at the right price. A good currency-hedging strategy is vital to guarding against the risk of sudden market swings. Ensuring that you have full visibility into customer demand is another important element of risk management. Shortage gaming — when customers exaggerate their true demand out of fear of future shortages — can play havoc with supplies, for example.

Making supply chain risk management central to everything requires investment, both financial and in changing organizational culture. But the cost of ignoring it will be far higher in today’s unpredictable, interconnected world.

Arindam Mukherjee is a supply chain operations architect for digital transformation initiatives at Juniper Networks.