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Driving the Risk Out of Global Supply Chains

Feb. 6, 2023
The number of supply chain disruptions was up 32% in 2022 versus 2021. Here are 10 risks that companies should be paying attention to in 2023.

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Supply chains have been around for a long time, but they’ve taken center stage as companies work to get the right products to the right place and at the right time. The COVID-19 pandemic interrupted many global supply chain networks, which are now righting themselves and preparing for the next potential disruption.

The threat is real. According to Resilinc, supply chain disruptions increased by 32% in 2022 (versus the prior year). Factory fires were the biggest disruptive threats, followed by mergers and acquisitions, business sales and leadership transitions.

“With 3,609 alerts and an 85% year-over-year increase, 2022 trumped previous years with the most factory fires ever recorded in a single year. Much of this trend is being driven by gaps in regulatory and process execution as well as a shortage of skilled labor in warehouses,” Resilinc reports.

“2022 also saw a large increase in labor disruptions around the globe marking a 92% YoY increase,” the company continues. “Clear examples of this are the protests at the Foxconn iPhone factory in China and the port truck driver strike here in the US.”

Don’t Ignore These Supply Chain Risks

In assessing some of the top risks that may impact global supply chain networks in the coming year, KYU narrowed its list down to 10 that all companies should be aware of. In its latest Supply Chain Risk Barometer, the company says the ongoing, pandemic-related shortages and bottlenecks continue to impact global networks.

For example, KYU says demand for electronic products has risen sharply as a result of more people working from home. It notes more than 300 million PCs were sold in 2020, up 17% over the prior year. “Automotive, electronic components, computer and telecommunication companies are all now fighting for the capacities of semiconductor manufacturers,” KYU points out. “Investments are being made to build new factories in the US and Europe in particular, but they will not see the light of day before 2023, while demand continues to grow, driven by 5G, IoT and AI needs.”

Knowing this, companies have to be able to accurately assess their vulnerabilities—and strengthen their strategies and control systems—in response to these potential threats:

  1. Lack of capacity. Suppliers are under-capacity and cannot meet the increased demand.
  2. The logistics crisis. “Logistics operators are short [on] manpower,” says KYU, and unable to meet shippers’ transportation needs.
  3. Growing number of cyberattacks. Suppliers are vulnerable to attack and systems are interconnected throughout the chain.
  4. Sourcing challenges. Many of the suppliers are located far from the factories and closer alternatives have become scarce, KYU points out in its report.
  5. Poor forecasting capabilities. Companies lack reliable forecasts and cannot meet market demand.
  6. The global health crisis. Lockdowns result in a local shutdown of business, leading to major disruptions
  7. The looming economic crisis. Rising commodity, energy and wage costs are boosting inflation and complicating the recovery, KYU says.
  8. Natural disasters. Global warming increases the criticality of disasters affecting many companies.
  9. Increasing product defects. According to KYU, the risk of quality problems and product recalls is a major concern for companies right now. It points to the automotive industry as proof. The sector is in the midst of a major and rapid technological shift towards electric vehicles (EVs), “and is concretely reflected in [numerous] product recalls,” the company adds.
  10. The need for better corporate social responsibility (CSR) in the supply chain. “Issues related to health, the environment and human rights’ protection in the supply chain are becoming more and more pressing for [companies],” says KYU.

Help Wanted The global labor shortage is yet another area of concern for companies that are working to drive the risk out of their supply chains. This may become an even bigger problem as economics normalize and businesses expand.

As business picks up, manufacturers are questioning the ability of their suppliers to ramp up production at the same time as they hire new staff,” KYU states. “The availability of human expertise in production control and special know-how in the fields of engineering and maintenance is a major concern for [aeronautics, automotive and equipment manufacturers].”

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