Applying a dose of hindsight to the Conference Board’s C-Suite Outlook 2022 survey report seems to reveal major gaps. Surveying 1,614 C-suite executives (including 917 CEOs globally), the report reflects “C-Suite Outlook,” exploring external stress points faced by business leaders.
What is the future of supply chains?
The report predicts that global production networks will remain a dominant feature of supply chains, China will remain a primary manufacturing hub and the globalization of services will gain momentum. The research group’s supply chain analysis was finalized before Russia invaded Ukraine and before China enacted widespread lockdowns in response to new COVID infections throughout the country. That timing might explain the report’s lack of attention to reshoring and its assertion that an increase in localized sourcing is likely to add to inflation in the U.S. and Europe.
But it turns out that hindsight isn’t always 20/20.
New research from the International Monetary Fund (IMF) suggest that companies and countries are better served by keeping supply chains global – and even more diverse than they are today. The findings, which support the Conference Board’s prognostication, also suggest that risk managers and their colleagues in operations, finance, and procurement groups are likely to confront more, not less, complexity – along with a need for better and more frequent vendor diligence — during the next decade.
The IMF’s analysis shows that supply chain “diversification significantly reduces global economic losses in response to supply disruptions,” according to a related IMF post. “… Higher diversification also reduces volatility when multiple countries are hit by supply shocks.”
Despite those findings, the Economist reports that “governments have become keener to boost domestic production, the better to reduce their vulnerability to disruptions in foreign supplies” while noting that the IMF research “suggests that this would be misguided. Supply chains held up better during the pandemic than is often assumed … and greater self-sufficiency is likely to leave countries more vulnerable to future shocks, not less.”
How To Reduce Supply Chain Complexity
While compelling, the IMF findings don’t mean that government and private industry leaders will make immediate moves to increase sourcing and country diversity in their supply chains. That said, risk managers should recognize both the benefits and risks of reshoring while continually improving their ability to address the complexity of supply chains. The following steps can help:
- Address geopolitical risks: Russia’s war on Ukraine and the massive number of economic sanctions and political orders the invasion triggered have consequences for organizations’ business continuity, regulatory compliance, cybersecurity, data privacy, supply chain, and technology risks. From a practical perspective, risk managers should understand sanctions and their impacts, identify which of those items warrant immediate attention, and then collaborate with colleagues (e.g., compliance, legal, and cybersecurity teams among others) to understand risk exposures. Shared Assessments Geopolitical Risk Guide provides additional recommendations, checklists, and practical guidance on applying the SIG to potential Russia/Ukraine impacts.
- Strengthen Nth party governance: Managing supply chain complexity requires a due diligence information-gather process that includes a process for addressing nth party risk. Mapping activities are the most effective way to gain visibility into nth parties and their risk exposures. While mapping processes vary according to a company’s unique characteristics and trading partners, the approach typically involves creating an inventory of all third parties, identifying interdependencies throughout the complete supply chain, analyzing risks, and then monitoring and mitigating those risks on an ongoing basis. The Shared Assessments briefing paper, Complex Supply Chains – Gaining Visibility into Nth Party Governance – provides comprehensive guidance on mapping critical interdependencies along with guidance on managing numerous nth party risk management challenges and “churn points.”
- Make scenario planning more imaginative – and instructive: While risk managers of a certain age are well-aware of one of the 9/11 Commission Report’s most important conclusions, a “failure of imagination” continues to hamper scenario planning activities two decades later. “In C-suite discussions, there is general agreement that scenario planning efforts have plainly lacked the imagination needed to plan for what has happened across the last two years,” noted Gartner Group Vice President Brian Kropp and Shared Assessments Advisory Board Member Ceree Eberly in an article on post-war scenario planning. One way to get the creative scenario planning juices flowing is by looking at the activity from a new perspective. “Transform your scenario planning exercises into training exercises,” Kropp and Eberly write. “The goal of scenario planning should be about building agility muscles, not preparing for a specific scenario. Develop your organization’s ability to react to events and respond with a plan instead of following a plan in reaction to events.”
In a still-emerging supply chain normal, looking ahead – and backward – with a fresh perspective is helpful.