News data as a signal in Supply Chain Risk monitoring

Anyone paying attention to current events will be aware that the supply chain is in the news in a way that we haven’t seen for decades. 

To give just three examples:

• Since early 2020, shortages of computer chips have restricted supplies of everything from computers to cars.
• In recent weeks, natural gas prices in Europe have skyrocketed, partially due to restricted supply.
• In many US states, restrictions on the purchase of alcoholic drinks are in effect thanks to supply chain issues.

These examples really are the tip of the iceberg. Challenges relating to the supply chain are now a critical issue for both government and business. Both need to do everything they can to avoid these issues in the first place, or work around them when they arise. 

That process starts with understanding what is happening and how we got here, which I will discuss below, but also involves scanning global media for the ‘advance warning’ signals and insights that enable fast and appropriate action.

Understanding the supply chain

In simple layman’s terms, the “supply chain” is the set of processes and inputs, across a range of organizations, that collectively deliver a finished product or service. As an aside, ‘chain’ is a misnomer: a network is a better way to visualize these arrangements.

Some supply chains are simple. In the little red hen, the eponymous hero of the story is a one-chicken supply chain when it comes to the production of a loaf of bread. But real life is not usually quite so straightforward. In fact, modern supply chains can be extremely complex.

They are also interdependent. The current natural gas supply shock in Europe is increasing prices for consumers. But more significantly again, it has led to the closure of fertilizer plants due to high fuel prices. Fertilizer plants are our main source of carbon dioxide. CO2 is, in turn, a vital element in the food and drink supply chain, and as a result, food shortages are currently a real risk in the UK and beyond. 

Over the past couple of decades, two trends have greatly increased the complexity and decreased the resilience of supply chains:

• Globalization has meant supply chains increasingly cross national borders and indeed straddle the globe, and
• Just-in-time manufacturing has led to reductions in inventory stored by manufacturers

To be clear, both these trends work for good in ‘normal times’. Globalization means that goods can be produced more cheaply, and allows economies around the world to benefit from investment and jobs. Meanwhile, just-in-time manufacturing means reduced costs associated with the storage of inventory and greater efficiency in production.

But as we have discovered over the last 18 months, we cannot always rely on ‘normal times’. 

Yes, Covid 19 has been the headline event, and has been indirectly responsible for a number of the current supply chain issues arising around the planet. But more important than the specific repercussions of this one event is the lesson it has taught us about supply chains: they are vulnerable to external shocks.

These shocks can come in many forms. Just reflecting on the last five years or so brings many of them to mind:

• Political shocks (think Brexit in the UK, or regime change almost anywhere)
• Environmental disasters or more gradual changes such as climate change
• Supply shocks relating to specific commodities and raw materials
• Entirely random events, such as the grounding of the container ship Ever Given in the Suez Canal in 2021

All of these can cause profound short-term or long-term consequences for supply chains, and globalized, ‘just-in-time’ businesses are particularly vulnerable to them. Perhaps because of how smoothly it has run until recently, we forget just how miraculous the global supply chain is. But it is also fragile.

The good news, however, is that we can take steps to protect against these shocks, or at least ameliorate their worst effects. The most basic (but also the most effective) of these is stockpiling: breaking the principles of just-in-time to ensure we have sufficient inputs on hand at all times. Many businesses, aware of our changing world, now do this.

It is also beneficial to be agile: to be ready to look elsewhere for inputs and commodities and fast to integrate new suppliers into supply networks.

But most of all, it helps to be aware of potential shocks as soon as possible.

AYLIEN News API: advance warning of supply chain issues

Whether for the sake of your own business, or as an investor seeking to understand threats and opportunities affecting others, having an early awareness of supply chain challenges is vital. Fortunately, this is precisely the job the AYLIEN News API was built to do.

By scanning a huge range of titles (over 80,000 sources) from around the world, and using natural language processing (NLP) to accurately identify the subject matter of each, AYLIEN News API gives almost immediate visibility to events relating to the whole range of elements that may influence the supply chain, including:

• Countries or territories,
• Companies or other organizations,
• Raw materials or commodities,
• Natural disasters, and
• Labour markets

To put it simply, whatever you feel you need to keep an eye on, AYLIEN News API will give you the information as soon as possible, and as a result the time to respond.

Take the example of natural gas prices and restricted supply that we discussed at the top of this piece. This is currently mainstream news, as we can see in the timeseries line chart below, which shows articles mentioning 'gas price' over the last 90 days. The large spike in articles corresponds with the rising awareness of the price surge, and the response from Kwasi Kwarteng, UK's Secretary of State for Business, Energy and Industrial Strategy, trying to reassure the nation that energy supplies will be maintained.

But six whole weeks ago, an AYLIEN News API user tracking news events relating to the natural gas supply would have seen a smaller spike on August 11th, relating to news of gas supply cuts from Russia - an event that made a marginal impression on mainstream media sources.

An organization with this insight would be in a position to make alternative arrangements (if not for natural gas, then certainly for CO2 supplies). And an investor aware of the implications of rising gas supplies on European supply chains would have been able to respond appropriately.

That, in a nutshell, is the power of AYLIEN News API. Try it for yourself, for free, by signing up for a 14 day trial now.