Navigating Geopolitical Risks in The Supply Chain
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“What is the price of a barrel of oil today?” That’s a question I ask my classes during the first few minutes of our class, be it an undergraduate class in operations management, a graduate class in supply chain management, or a professional development seminar full of supply chain professionals.
Sadly, only a few have any idea of the price of a commodity that impacts every element of the supply chain. But it goes deeper than not knowing something that is a click away. It is the professional disconnect as to why this kind of knowledge is so critically important in the first place.
My teaching method includes a healthy dose of ‘current events’. I’m sure you remember current events from middle school social studies classes. Your teacher asked you to bring in a recent newspaper or magazine article about the subject du jour in class and prepare a one-minute overview to be presented in front of the class. For some, the thought of that process brings flashbacks and chills.
In my view, the supply chain management profession is not spending enough time on keeping current and staying educated. And that is hurting your performance and shortchanging your employer and customers.
What is happening on the front page is directly related to your job. We all tend to get caught up with the fires and emergencies on our desk. But look at the macro view of the world. In our global economy, chances are that a political assassination or military coup across the globe may have as much of an impact on your electronic prices as a snowstorm in Colorado has on your domestic shipments. And unfortunately, there are those in our profession who may not be aware of either.
In our globalized economy, political and geopolitical risks have become integral considerations to identify and reduce risk in procurement and supply chain management. These risks can disrupt operations, increase costs, disappoint customers and impact business continuity. Procurement professionals must be vigilant in assessing, mitigating, and managing these risks to ensure the stability and resilience of their supply chains. By diversifying suppliers, vigorously assessing risks, and staying informed about geopolitical and economic developments, companies can navigate uncertainties and maintain a competitive edge.
Political and geopolitical risks encompass a wide range of potential challenges that can impact supply chain activities. Trade disputes and the imposition of tariffs can lead to increased costs, supply chain disruptions, and changes in sourcing strategies. Political shifts in different countries can result in changes to regulations, standards, and compliance requirements, affecting procurement processes and product quality and cost.
Political events like elections or changes in government can create economic instability, which can impact currency exchange rates, inflation, and consumer demand. Geopolitical tensions, conflicts, and natural disasters can disrupt transportation routes, hinder access to resources, and delay production. Some countries may decide to nationalize resources, affecting the availability and cost of key inputs for manufacturing.
While complete elimination of political and geopolitical risks is impossible, procurement professionals can take proactive steps to mitigate their impact:
Diversification of Suppliers. Relying on a single supplier or sourcing from a single region increases vulnerability. Diversifying suppliers and sourcing locations can provide flexibility in the face of disruptions.
Robust Risk Assessment. Regularly assess political and geopolitical risks in your supply chain and develop contingency plans to address potential disruptions. Maintain open lines of communication with suppliers, customers, and other stakeholders to stay informed about potential risks and collaborate on risk management strategies.
Resilient Sourcing Strategies. Adopt strategies that prioritize resilience over cost optimization. This could involve keeping buffer stocks, dual sourcing, or regionalizing suppliers. Create a detailed map of your supply chain to identify critical points of vulnerability and assess potential risks. Develop scenarios based on different geopolitical situations to prepare for potential impacts on your supply chain.
Keep current. Procurement professionals must continuously monitor and stay informed about political and geopolitical developments to effectively manage risks. Regularly follow reputable news sources and publications covering global politics, trade agreements, and international relations. Keep track of policies, regulations, and trade agreements that could impact international trade and supply chain operations. Stay updated on economic indicators, currency exchange rates, and market trends that could influence procurement decisions. Join industry associations and trade organizations that provide insights into geopolitical risks and offer resources for risk management strategies.
And keep tabs on those pesky oil prices.
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