Supply chain risk falls in May but more Covid-19-related pain to come: riskmethods

A report from riskmethods finds a decline in every type of supply chain risk it monitored during May, as Covid-19-related lockdowns and restrictions began to lift, but warns that the overall threat remains elevated and there are further tough times ahead. The firm’s 2020 Risk Report: The Year That Changed Everything looks at the top supply chain risks that affected organisations in 2019 and how they have evolved during the first half of this year. Comparing January to May 2020 with the same period last year, it found a 34% increase in the total number of early warnings of supply chain disruption. Warning signs for disasters at partner sites increased by 151%, disasters at location by 100% and instability in key employee positions by 46%. By month, there was a 24% increase in early warning signs of financial instability and distress of suppliers in January. This includes indicators such as disaster at business partner site, disaster at location, ownership structure, revenue/growth outlook, major product delays, and force majeure. In February, there was another increase of nearly 7% in the amount of early warning signals of suppliers in financial distress. In March, the warning signs reached their peak, increasing by 131% from the previous month. There were slightly fewer warnings in April, down 2%, but the number was still two and half times higher than in January 2020. In the first five months of 2020, enterprises received nearly as many warnings of force majeure claims from suppliers as in all of 2019, according to the research from supply chain risk management firm riskmethods. But by the end of May, force majeureclaims returned to the levels seen in December 2019. And riskmethods’ index shows a decline in every type of supply chain risk in May. It says this signifies “a potential turnaround as Covid-19-related lockdowns and restrictions begin to lift”. However, the percentage of pandemic-related threats in May was still higher than January or February 2020, finds the research. Meanwhile, financial distress of suppliers was 105% higher in May than at the beginning of the crisis, signalling “there’s more damage to come”, says riskmethods. “Many organisations have now resumed or are ramping up production. But global supply chain issues remain. There are capacity limitations, product shortages and, for many organisations, a substantial decline in revenue and orders. The economic backdrop is also worrying, with many suppliers struggling financially,” it states. The firm warns that other supply chain risks are on the rise, and urges risk managers not to take their eye off the ball as Covid-19 grabs the attention. The warning comes as the research shows a “major” 180% times increase in the amount of warnings regarding cybersecurity risk, as organisations face up to the challenge of employees working from home. There has also been a sharp 170% increase in labour practices and human rights risk in the first half of 2020 compared to last year, and a 150% times increase in key employee stability risk. On the other hand, there has been a 50% decrease in political situation risk and a natural 265% fall in hazard risk, according to riskmethods. “One thing the global pandemic has taught us is how quickly risk management priorities can change. This year we saw a massive shuffling of supply chains overnight,” commented Heiko Schwarz, CRO and founder of riskmethods. “Despite the severity of the pandemic, procurement and supply chain professionals cannot afford to lose sight of other risk and warning signs in the market. With the evolving complexity of supply chain risk, organisations need strategic, proactive, data-driven approaches to supply chain risk management,” he added.

Supply chain risk falls in May but more Covid-19-related pain to come: riskmethods

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