A recent Inside Supply Management article on The Global Reality of Geopolitics noted that terrorism, war, disease and political unrest are just some of the geopolitical pressures that supply management executives face today. The geopolitical risks for most multi-nationals are increasing daily, and most of their supply chains, which still assume flexible JIT models will always be possible, are still not prepared.
To prepare your supply chain, you need to identify, assess, and put a mitigation in place for each likely or significant threat. One way to assess the threats, according to Celina Realuyo of CBR Global Advisors, is to look at its impact from a space, time, and depth perspective. With globalization, unless multiple countries adopt the same protectionist measures, there are no boundaries. As a result, disease outbreaks can spread rapidly around the globe. Today’s marketplace is 24/7. As a result, most leaders are in response mode instead of strategic planning mode. A problem usually produces multiple instantiations as it ripples through the chain. Thus, a solution that solves a second level effect may not solve the base problem. Thus, if a problem is unrestricted by boundaries, relevant to the market, and related to manufacturing, it’s probably significant as its repercussions could quickly spread throughout the supply chain. Another way to assess threats is to consult experts to assess severity and likelihood.
So how do you mitigate the threats? According to the article you:
- Collaborate with the C-suite
It can be extremely difficult to price and protect against certain types of (geopolitical) threats, so you need all of the experts in the room who understand the potential repercussions. To get them, you’ll need the C-suite’s support. - Invest in Expertise
If you don’t have risk experts in-house, get them. In the interim, bring in consulting experts to help you. - Establish Local Relationships
You need to work with your suppliers to identify all of the relevant geo-political and location-based threats, their potential impact, and their potential likelihood. Otherwise, you could be panicking for no reason or ignoring a potentially explosive situation.
And it’s not a bad start. However, I was really disappointed that there was no mention of Optimization, which is very relevant in risk analysis. You see, where risk is concerned:
- You’ll never be able to mitigate all the risks.
- You’ll never have enough money to implement all of the mitigations you identify.
- You never know precisely when a risk might materialize or how much it will really cost.
- No matter what you do, you’re still going to experience disruptions.
Thus, the only way to come up with a mitigation plan that’s going to truly minimize the cost of future supply chain disruptions is one that uses simulation, modelling, and optimization. Now, it’s true that there’s very few solutions on the market to help you at this point, but it’s where you need to get to. Decision Optimization isn’t just for Logistics, Sourcing, and Supply Chain Planning. It’s for much, much more.