Predicting the future is impossible; so focus on mitigating risk and building resiliency

If the challenges of the last several years have taught us anything, it’s that supply chain risk is ever present. As the world becomes increasingly connected, the number of factors that can plunge supply chains into chaos rises exponentially. We seem to exist in a perpetual state of disruption as the idea of a seamlessly operating supply chain seems ever more unattainable.

Still, even as the complexity of global supply chains becomes apparent, manufacturers and retailers still seem to be caught by surprise whenever something goes awry. So, while we must recognize the impossibility of preparing for every eventuality, it’s important to 1.) identify and mitigate risk; and 2.) build resiliency.

4 risks to track

Here are four key risks that supply chain executives should be aware of, as well as insight on how best to brace for these future challenges.  

1. Weather/climate events

Ocean carriers that suddenly shifted routes in January from the Suez Canal to around the Cape of Good Hope are almost certain to experience treacherous conditions as winter approaches in the southern hemisphere. In addition to existing challenges of increased traffic and longer journeys, vessels are certain to face higher winds and rougher seas, where wind speeds average above 25 mph in June. 

At the same time, southern ports, such as Houston, New Orleans, Miami, Jacksonville, Augusta, and Savannah will face increased hurricane risk during these summer months. A report from Colorado State University released in early April predicts 24 named hurricanes in 2024, nearly twice as many as the average forecast.   

2. Geopolitical tensions

Ongoing political tensions in Southeast Asia and the Middle East represent several of the most significant risks to global supply chains. Heightened aggression—primarily between Iran and Israel—has the potential to create new risks in the Strait of Hormuz and the Strait of Gibraltar. With 21 million barrels of oil moving through the Strait of Hormuz daily, the region is moving into the spotlight with the prospect of Iran again engaging directly in the conflict. The Strait of Gibraltar also represents a strategic chokepoint for the Mediterranean. On April 13, a commander for the Iranian Revolutionary Guard warned that the group intends to block the Strait of Gibraltar in retaliation for the continued conflict in Gaza.

3. Aging infrastructure

Aging infrastructure along the eastern seaboard of the United States poses an immediate and significant risk for future supply chain disruptions. For example, over 20% of the bridges in Pennsylvania are deemed “deficient” according to the The American Road & Transportation Builders Association. In addition, gaining infrastructure in southern California poses as risk as this critical region handles roughly one-third of all U.S. imports and exports.  

4. Cyber risks 

In addition to the age and condition of physical infrastructure in the United States, supply chain executives must also take into account the significant cyber security risks that now exist. For example, many of the loading cranes that operate in ports around the world are manufactured, installed and maintained by foreign, state-owned companies. The U.S. Congress recently wrote to Chinese-owned ZPMC to demand answers following the uncovering of critical infrastructure security vulnerabilities at American ports. Unfortunately, simply going low-tech is no longer an option as disconnecting the cranes from the internet disrupts the connection with the port operating system and delays vessel turnaround, extending dwell times that are already long.

Mitigating risk and building resiliency

So how can companies position themselves for success in a space that is increasingly beset by uncertainty? While it is important to remember that attaining a risk-free supply chain is a pipe dream, there are critical best practices that can be followed to help reduce risks.

Step 1: Build a company-specific risk portfolio that recognizes every company has risks and identifies critical risk areas, in addition to those broad risk areas detailed above.

Step 2: Once potential pitfalls are identified, develop playbooks for each risk (and possible combinations of risks) to determine the best possible responses. Simply put, failing to plan is planning to fail so all crisis responses must be tested to ensure they address the emerging needs.

Step 3: Once risks are understood, creating a resilient supply chain requires implementing redundancies for all areas with a single point of failure. No one has ever regretted having a backup plan, so if you are able to identify weaknesses it is always best to have robust plans in place to ensure your company can pivot quickly.

Step 4: Remember that it is not only your organization that may face supply chain risks—if you rely on a sole source supplier for any critical components then identify a “plus-one” for any suppliers that may be thrown into disarray.

While this advice can help lay the groundwork for weathering a potential supply chain crisis, it’s important to tailor your response to the individual needs and risks of your company. Supply chain crunches occur precisely because they are unpredictable and expose vulnerabilities that had not previously been considered. In other words, each one represents a “perfect storm” that shows us that far from knowing everything – we don’t even know what it is that we don’t know. This doesn’t mean supply chain slowdowns are inevitable – it means we must remain agile and preserve our ability to adapt to new threats as they emerge. Plans matter, but so does a consistent approach that takes new data and trends into account.  

About the author:

Jonathan Colehower leads UST’s Global Operations and Supply Chain Management Practice. Over a 20-year career, he has worked with leading global companies to solve complex business problems. Colehower is responsible for developing high-performance teams that deliver lasting impact for UST clients.

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