Supply Chain Resilience (Part 1): Corporate risk management
👉🏻Background:
The war in Ukraine caused an extensive economic ripple effect and showcased the urgent need for most companies to bulletproof their supply chains. As a result, supply chain resilience has increasingly become a core ability of Procurement and Supply Chain Professionals to deal with the unexpected successfully by withstanding, adapting, and recovering from disruptions to meet customer demand and ensure target performance 🏋️♀️. In a nutshell, supply chain resilience deals with risks with a low probability (LP) of occurrence but a high impact (HI) in terms of economic loss. Therefore, underestimating risk probability or economic impact can quickly lead to a misjudgment of a risk category such as geopolitical uncertainty.
🤔Assessment:
In retrospect, the signs and early warning signals of a possible aggravation in the Russia-Ukraine interrelationship were sufficient🔍: The annexation of the Crimean Peninsula in 2014, Vladimir Putin refusing to accept Ukraine's desire to join NATO or western sanctions to mitigate Russia's power over Ukraine in the past. However, politics and businesses believed that globalization, trade, and interdependencies would prevent an escalation and that a war would not break out. Due to the low historical probability of occurrence, companies typically considered this (geo-)political risk LP/HI.
💡Learnings:
Building resilience and putting it into practice can lead to a supply chain system that can overcome and respond to disruptions such as the Russia-Ukraine war 🔃. The current Russia-Ukraine crisis showcases how vital it is to pursue resilience practices because as supply chains become more complex and global they also become more vulnerable to disruptions. While supply chain disruptions have always existed, they have changed in complexity and frequency. For this reason, companies must rethink their existing risk management and generate a new corporate risk awareness (e.g., risk categories, risk maps). Although predicting high-impact, low-probability events are almost impossible, absorptive (e.g., Dual-sourcing), adaptive (e.g., Re-routing), and restorative (e.g., workforce recovery) capacities must be implied. In our next post, we further discuss enablers to implement measures and achieve supply chain resilience.
This post is part of a three-staged post series by Martina Buchhauser - The Procurement Initiative, Erik Hofmann, Nicolai-André Stickler, and Laurin Zemmrich
#resilience #procurement #crises