Supply chain disruption may worsen in 2023: Supply Wisdom

Supply chain disruption will persist into next year and could even worsen, Supply Wisdom has told Commercial Risk. Next year is shaping up to be another volatile 12 months for supply chains, with simmering geopolitical tensions, climate change and the threat of recession poised to cause further disruption, said the firm’s founder and chairman Atul Vashistha. “I don’t believe that ongoing supply chain disruption will change next year. Disruptions around the world will continue with geopolitical risks, climate change and economic recession,” said the head of the supply chain risk management experts. “Once you start to look at these areas one by one, you realise the risk of disruption has not diminished and may in fact be higher,” he added. A recent survey from SAP found 52% of US companies expect current supply chain issues to last through the end of 2022, while one in three said the problems will last until the end of summer 2023. Political unrest was cited as the biggest cause of disruption, followed by lack of raw materials and rising fuel and energy costs. The invasion of Ukraine and tensions between the US and China could cause further supply chain disruption next year and beyond, according to Vashistha. “The China-Taiwan issue and China-US relationship have potential to create disruptions, while the European energy issue also has the potential to cause disturbance, particularly for manufacturing, automotive and engineering goods,” he said. At the same time, Covid-19 continues to pose a threat to global supply chains. China has seen a rise in Covid cases towards the end of 2022, with ongoing travel restrictions, mass testing and local lockdowns. Further tightening of restrictions could cause disruption to China-based manufacturing and ports into 2023, Vashistha warned. There is also a high probability of a global recession in the new year that will bring cascading risks, including labour strikes, cyberattacks and financial stress. This would likely exacerbate supply chain problems. “There is a high probability that supply chain disruption will worsen if recession takes hold. We are likely to see the first impacts of inflation and recession in the retail sector in the next few months, but many industries with global supply chains will be impacted,” Vashistha said. Companies with poor risk management will perform worse if recessionary risks continue to rise, he warned. “They will have an even harder challenge to find the budget to invest in risk management, so it will become even more important to invest in the right areas now,” he said. Given ongoing supply chain disruptions, early warning risk alerts have become a must-have business essential, Vashistha argued. “There is tremendous advantage for companies that can use data and intelligence for risk management, both existing data and ongoing continuous data,” he said. Companies need to start thinking about risk more holistically, Vashistha continued. Historically, companies have looked at risk in silos but recent events have shown how risk can “cascade”, starting in one area and impacting others, he added. Vashistha strongly believes that supply chain risk management must incorporate location-based analysis. “Supply chain disruption has been focused on the health of the supplier but if you look at the last few years, the location nexus has been extremely critical. Recent disruptions have happened due to the health of the location, and not necessarily because of the supplier. Companies are beginning to realise it is important to understand not just who the supplier is, but also the location,” he said. Data and analytics could unlock new product offerings from insurers in coming years, including supply chain insurance solutions, believes Vashistha. Using continuous data and analytics, companies will be able to take steps to mitigate supply chain exposures, while insurers will be able to better analyse and price risk, he explained. “I believe, just like cybersecurity insurance is becoming the norm, we will see some very innovative products around supply chain insurance. Companies that have a good or high supply chain risk rating should benefit from that. However, the way to know and learn that is to not look at past trends – which unfortunately insurance has done,” he said. “The trends affecting supply chains right now are only two or three years old, so using a continuous stream of data will help you be more predictive in terms of thinking through the impact of climate change or instability of Russia-Ukraine or China-Taiwan. All that data will give you a much better view of the potential for disruption in the future,” Vashistha said. Insurers are not yet taking full advantage of available data and intelligence that would enable them to assess risks facing suppliers and locations, he added. “We have data available, and we have machine learning and artificial intelligence tools to look at that data and analyse it at scale and in continuous streams, to give insurers a view of the current risk and the potential of any entity or location in the supply chain. Early adopters of these tools will disproportionately benefit,” said Vashistha.

Supply chain disruption may worsen in 2023: Supply Wisdom

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