Supply chains are one of those things that tend to be only noticed when they break. And in 2021, we’ve been noticing them quite a bit. From fuel in the UK to alcoholic drinks in the US, it seems not a week of the year went by without some form of shortage being in the headlines.
It has always been an inalienable fact of life that the more third-parties are involved in any process, the more opportunities there are for that process to go wrong. Following this principle, as supply chains have become more complex and more extensive, what we call ‘supply chain risk’ - which we might define as any event or change that impacts on the successful delivery of product - has increased exponentially.
What we saw this year was the result, and it isn’t going away any time soon. The consequences of supply chain failures are significant. Lost revenues, lost reputation, lost relationships and in some cases the collapse of the business itself.
With this in mind, managing supply-chain risk is of critical importance. And in order to manage it effectively, we need to identify those risks as early as possible. To do that in turn, we need to know precisely what we are looking for.
What is supply chain risk?
Doing that means looking beyond the simpler definition of supply chain risk offered above, and detailing the different types of supply chain risk and how they can impact business. But first, just a little history to add context.
Over the past 50 years or so, two separate (but related) phenomena have combined to increase the complexity of the average supply chain, and by doing so the risks of failure within it.
The first is globalization, which is so ever-present and self-evident (even to consumers) that it hardly needs to be remarked upon. The recent supply chain issues relating to Brexit are a reminder, if one were needed, that modern manufacturing and even service delivery involves parties from multiple jurisdictions working in coordination.
The second is the rise in ‘just-in-time manufacturing’, essentially an efficiency measure, the aim of which is to avoid storage costs for complete or partially-complete products. Through careful optimization of the supply chain these costs can be minimized or eliminated, meaning reduced prices to the consumer and improved competitiveness.
Both these trends have been exploited to the full: and there is nothing wrong with that. However, taken together they create a fragile environment in which supply chain risks are quick to emerge - and snowball - when something goes wrong. For this reason, being aware of that ‘something going wrong’ has become incredibly important. This, ultimately, is the core challenge of managing supply chain risk.
What sort of ‘somethings’ might such risks entail? As referenced above, 2021 was a lesson in the different forms supply chain risks might take, and the events that can trigger them. To provide a brief and by no means exhaustive summary, these might include:
- Issues directly relating to the organizations (and individuals employed within them) that make up a supply chain: bankruptcies, decisions to work with other partners and so on - of the type that characterized the scramble for personal protective equipment (PPE) during the early days of the Covid 19 pandemic.
- Political events that make trade across borders difficult (Brexit being the obvious recent example), or that impact on organizations within a specific jurisdiction making them unable to complete orders.
- Environmental issues, either one-off floods or fires etc, or slower more gradual changes such as those impacting climate. The former occur at an ever-increasing rate, almost certainly thanks to the latter: both can impact on the ability of a globalized supply chain to function smoothly.
- Related to the categories above are supply shocks relating to specific materials and commodities. The natural gas supply challenge in Europe, which has in turn impacted a number of industries from fertilizer to fizzy drinks, is partly caused by political and environmental issues. But it is in turn an example of how dependence on a specific commodity is worth noting as a separate category of supply chain risk.
- Last but not least, what can only be categorized using the words of Harold Macmillan as “events, dear boy, events”. The more moving parts are involved in a supply chain, the more chance a ship running aground in the Suez Canal will impact on it.
Reading back through that list should, I hope, serve to illustrate just how varied supply chain risk can be. And whilst challenges like climate change can be seen coming (unless you really have your head in the sand), others are harder to perceive as they emerge.
But smart management of supply chain risk requires precisely that. Let’s talk about what early detection of these risks might look like.
Identifying supply chain risk
It is of vital importance to identify all forms of supply chain risk as early as humanly possible. The sooner potential issues with the supply chain are identified and quantified, the more opportunity the organization has to put in place measures to ameliorate or eliminate entirely the negative impact of these risks down the line.
Unfortunately this is often easier said than done. As we saw above, the range of risks is extensive. And as supply chains are characterized by dozens or even hundreds of suppliers, with their associated inter-dependencies, the sheer volume of entities and relationships that an organization needs to monitor is overwhelming.
Fortunately, help is at hand, in the form of the global news media. The forms of supply chain risk we outlined above are also subjects of interest to this news media, and as a result we can effectively use this infrastructure to keep us informed. To some extent, however, this is just kicking the can down the road: there are hundreds of thousands of publications, blogs, court reports, filings and so on. Monitoring and reading these is beyond even the largest team of analysts.
Instead, it is far more efficient and effective to automate the process of scanning the global media in order to identify emerging supply chain risk. This is the job AYLIEN News API was built to do. In simple plain English terms, we provide organizations (both specialist vendors and direct to businesses) with the ability to monitor the world’s media so you can identify relevant news items, and alert your organization when something specific needs attention.
In more detailed terms, we:
- Monitor over 80,000 news and media sources, including blogs, court judgements, traditional and specialist media, from across the globe and in all major languages
- Answer the question “what is this story actually about?” by using natural language processing (NLP) to accurately classify and categorize every single piece of content, creating structured, searchable news data in real time - which in turn delivers the ability to:
- Share the right information, with the right people, via support for dashboards that scale to any challenge and make ‘reading’ the world of supply chain risk easy. (See the kind of news data you’ll have access to in our new product demo)
That is, of course, still something of a simplification. But the conclusion is hopefully obvious enough: whether using a product like AYLIEN or some other alternative, it is imperative to go beyond simple news scanning options such as Google News, which neither accurately classify news by subject matter, nor support sophisticated sharing and alerting analysts when specific supply chain risks are identified.
On a positive note, with an appropriate system you should now be able to identify threats to the supply chain early. The question now becomes what to do with that information.
Managing supply chain risk
Clearly a comprehensive strategy for the management of supply chain risks is beyond the scope of a short blog post. However, it is possible to outline a few broad principles that any smart business would do well to follow - with the emphasis on both prevention and cure. In no particular order, here’s a few ways to ensure that your business remains capable of fulfilling those orders and keeping the show on the road:
Be ready for change, and build in redundancy: Just-in time manufacturing is all well and good, but it is prone to shocks. To the greatest extent (financially) possible, allow for redundancy. Have multiple suppliers for each input, or at least alternatives on standby should the worst occur. Be willing to store more of both fully and partially manufactured product. In short: be prepared to act when horizon scanning identifies supply chain risks.
Ensure the structures are in place to support agile decision-making: The ability to make quick decisions is key, and as humans make decisions, they need the autonomy and freedom to act fast in changing circumstances. Make sure that your business processes support that freedom. Even better, plan for specific scenarios so that your organization knows what to do when a specific supply chain risk comes down the line.
Act fast…: Having put yourself in the position to act quickly, and given your organization advance warning of issues thanks to your horizon scanning efforts: make the most of it. Moving quickly vastly increases the possibility that supply chain risks can be resolved with little or no impact on customers. Don’t wait for the perfect solution, adopt the one that works now.
…but do take time to think strategically: Many supply chain risks are symptoms of bigger changes in the world around us. So whilst acting fast is important, do step back and ask whether these events are likely to become increasingly common, or indicate some permanent change of affairs that requires a more strategic, long-term response.
Communicate clearly with customers: If the worst comes to the worst and your business is at risk of not delivering, share that news with customers and retailers in an open and honest way. It isn’t necessary to shout it from the rooftops, but do ensure that those who need to know are aware of challenges ahead of time. Just as with your own business, the sooner they are aware of incoming risk, the better. They will thank you for your honesty.
To find out more about AYLIEN News API, please get in contact, or even better, try it for yourself now, with a 14 day free trial. You'll be up and running within minutes thanks to our get started guides and comprehensive documentation.