Managing Supply Chain Risks: The Current Challenges and Strategies for a Credible Solution

If you are a risk manager or management consultant working with a highly regulated industry, getting to grips with myriad supply chain risks is only part of the problem. Your role is also to articulate these risks in a way that makes decision-makers sit up and listen – and give the go-ahead for mitigation budgets and strategies.

Easier said than done. Perhaps some in the industry will relate to Cassandra, the Trojan priestess who was granted a double-edged power: the gift of prophecy and the curse of being believed by no one. And why would businesses release budgets for hugely costly mitigation strategies unless there’s a compelling case for action?

In this article, we’ll look at some of the most compelling current threats to supply chains for highly regulated industries such as life sciences, reinsurance and financial services. We’ll then look at factors that make managing supply chain risks and identifying areas for concern so challenging.

Finally, we’ll introduce a way to navigate the threat landscape more accurately. This can help you to present a case for mitigation that gets buy-in and protects your organisation and its profits.

Before starting, a final thought that we’ll address later. If you could put a plausible number on value at risk – backed up by convincing data – how much easier would it be to convince business leaders that mitigating actions make business sense?

7 Current Threats to Supply Chains

To start, we’ll look at risk using relatively recent developments as our examples. As we have pointed out in a post about enterprise risk management, these are not occasional interruptions but are becoming the new norm.

1. Offshoring and Consolidation

In the quest for cost reduction, some manufacturers – particularly those in pharmaceuticals – rely on a relatively small group of offshore suppliers. But cutting costs can cost you. Moving away from domestic or nearshore production increases risks of trade wars, weather risks and quality concerns. In 2021 – during the Covid pandemic – the European Parliament published a study on post Covid-19 value chains, and options for reshoring production back to Europe in a globalised economy. The message was clear – relying on distant nations, particularly in times of emergency – is something that shouldn’t happen again.

2. Regulatory Risks

A study led by Intersys with the Institute for Manufacturing at the University of Cambridge discovered that more than two-thirds of life sciences shortages were linked to Official Action Indicated Notices issued by the US FDA. Of note is that there was a higher prevalence of issues in China and India than in the US and Europe. From DORA Act compliance for financial services to the Mapping America’s Pharmaceutical Supply (MAPS) Act, suppliers falling foul of regulations can seriously affect your business operations.

3. Just in Time Manufacturing Models

Toyota’s pioneering approach was “Making only what is needed, only when it is needed, and only in the amount that is needed.” This was good for saving money on holding stock, but recent events have questioned the validity of this model when it comes to managing supply chain risks. When the container ship Ever Given, bound for Felixstowe from Malaysia, got stuck in the Suez canal for six days, it cost shipping traffic £730m. The effects were felt at one level by consumers waiting for Amazon deliveries and another by company leaders asking valid questions about the ‘just in time’ model in a fragile global trade environment. For some industries, it may be a useful model but for others – such as pharma –  just in time manufacturing may cause fundamental supply chain issues.

4. Extreme Weather Incidents

Regions where manufacturing is cheap frequently experience a disproportionate amount of weather disruption. The result is that many organisations are heavily exposed to weather-related risk. Overreliance on one region prone to extreme weather can seriously disrupt supply chains. For example, 92% of the world’s most advanced semiconductor manufacturing capacity is based in Taiwan, a country that – despite being technically one of the wettest places on Earth – in recent years has experienced supply chain disrupting drought. Insurers, in particular need to understand the true impact of climate change exposures to their portfolios. More widely, all organisations must ensure that they meet compliance rules concerning climate change.

5. Cyber Risks

A 2023 data breach report from IBM revealed that healthcare and pharmaceuticals breaches cost on average $4.82m – the highest in any sector. Pharmaceutical companies are increasingly working with third-party organisations in areas such as research and development, manufacturing, supply chains, trials and more. This increases vulnerability because these third parties will frequently have access to the parent company’s systems.

While healthcare and pharmaceuticals may suffer most, this is a widespread problem and particularly concerning for highly regulated sectors and those holding valuable intellectual property. Read our post about supply chain cyber security threats.

6. Consolidation Risks (Mergers and Acquisitions)

Managing supply chain risks may include eliminating any single source of product or service. But spreading your risk can be far more complicated than it appears at first glance. Mergers and acquisitions can have an insidious effect on good supply chain risk practices – unless you can keep up with industry developments. For instance, Company A acquires Companies B-F. Meanwhile, your several sources of crucial components become one source and your risk increases.

7. Transport and Logistics Problems

The further away your supply chain, the greater the risk of disruption and uncertainty due to transport and logistics issues. A large journey time can heighten problems associated with political upheaval, strikes, fuel price fluctuations, armed conflicts, compliance and customs regulations, and natural disasters. Quality control can also become an issue, particularly for temperature-controlled products. While Internet of Things devices can track product movements and temperatures to a granular degree, these can be targets for cyber criminals. 

If you work in pharmaceuticals, you might want to read our blog post 10 sources of risk in pharma supply chains.

Managing Supply Chain Risks: Common Solutions

Some of the most common solutions to managing supply chain risks include:

Diversifying suppliers. Ensuring there are multiple sources for critical components and geographically dispersed suppliers can help alleviate some of the most critical issues.

Inventory management. Strategically stockpiling critical materials or components  – and maintaining buffer stocks to manage short disruptions – can help to ride out a supply crisis.

Nearshoring. According to a supply chain article in Forbes, ‘… companies are progressively transferring part of their production to countries close to their markets and with similar time zones, in order to minimize the effects of disruptions in supply chains’. Supply chain risks associated with COVID 19, the Russia-Ukraine war and political and trade tensions between the USA and China are factors driving this emerging strategy.

Insurance and financial hedging. Insurance can transfer some supply chain risk and financial instruments can hedge against price volatility.

But… How Do You Deal with a Problem if You Don’t Know You Have a Problem?

Looking at solutions to supply chain problems may be jumping one step ahead. Before mitigating strategies can be implemented, supply chain risk managers must know that they have a problem in the first place. And that turns out to be a far more complex undertaking than it might appear to be at first glance.

Monitoring suppliers and supply chains is a fundamental function of a risk manager or business consultant. However, several common issues make understanding threats to an organisation – and making the case for mitigating budgets and strategies – extraordinarily difficult.

Firstly, risk managers often work within finance departments and do not intimately understand the manufacturing process. To put it bluntly, an advanced knowledge of risk modelling is not going to cover for that lack of understanding about how Industry A or B works at the granular level. This knowledge gap can be significant in terms of managing supply chain risks and lead to a failure to recognise critical dependencies within the manufacturing chain.

Furthermore, supply chains can be notoriously opaque. Tracing the full extent of their supply networks, especially beyond tier-one suppliers, can be tricky. Weak points lurk, unidentified, until the proverbial hitting-of-the-fan incident occurs. Even if supply chain oversight is fair or good, there’s no guarantee that supplier reporting will be. Incomplete or outdated information (particularly relevant to fast-moving situations such as wars or climate incidents), and different reporting standards and criteria can all lead to an incomplete and complex picture. Consolidating data into anything meaningful may become an impossible task.

The takeaway is that risk managers can find themselves lacking the experience and data to scrutinise potential areas of concern and develop a convincing case for mitigation.

All of these challenges occur in a climate where the case for mitigation must be unassailable. Because, while organisations may offer lip service to a need for supply chain resilience, they’re also likely to push back hard against the cost of mitigating measures – unless there’s an unimpeachable case for action.

There Are Solutions to Supply Chain Monitoring, But They Often Don’t Work

Risk managers or organisations who rely on spreadsheet data may realise this isn’t going to cut it and begin to shop for supply chain risk software. This is a step in the right direction but, in most cases, it’s going to present its own problems.

As the previous section reveals, supply chain mapping can be an incredibly complex and time-consuming problem. Inevitably, risk managers will do what they can and then expect the platform to fill in the gaps. It will, but perhaps not in the accurate and diligent way you require. In a phenomenon brutally described by software engineers as ‘rubbish in, rubbish out’, your outputs are only as good as the data you feed it. And, as we’ve seen, getting the right data can be notoriously difficult.

Essentially, if you don’t dig deeper into your supply chains, you’ll get the same poor-quality data dressed up in shiny user interfaces, colourful reports or next-generation AI analysis. And your case for managing supply chain risk will be swiftly picked apart by your CFO, COO and board of directors.

What SCAIR® Offers and Why It’s Different

At this point, we won’t suggest there’s a one-button solution to this incredibly complex problem. But we will show you how our supply chain risk software, SCAIR®, does something very different to many competitors to help you overcome the issues outlined above and create a powerful case for mitigation.

Launched in 2006 and the first pharma supply chain risk management software to go to market in the UK, SCAIR® can help you to visually map supply chains, assess threat impacts, stress-test supply chains and respond to threats.

SCAIR® is different from many competitors because it is more than a software solution. Our supply chain risk assessment software can help you to identify risks for both internal (owned sites) and external (suppliers and contract manufacturers) sites. We then provide an objective assessment process to help shape your business’ supply chain risk mitigation strategies.

In fact, SCAIR® software and consultancy is an opportunity to finally rethink your whole approach to managing supply chain risk and embrace a powerful new methodology. The outputs will become powerful cases for introducing budgets for risk-mitigating strategies and help you, finally, command the data you need to perform your role to the highest ability. You’ll:

It also does something few if any competitor products can: SCAIR® provides a credible value at risk figure. This can become the centrepiece of your risk mitigation analysis and a compelling motivator for action.

SCAIR® is used in highly regulated industries such as life sciences and financial services by supply chain risk managers, management consultants, insurance managers, business continuity managers, insurers, and procurement managers.

To find out how our supply chain risk management software and consultancy can help you in managing risk, get in touch to find out more.

Call us: +44 (0)20 3005 4440

Email support@supplychain-risk.com

Head Office: 1 Bourne Court, Woodford Green, Essex, IG8 8HD

Cambridge Office: 3 Laundress Lane, Cambridge, CB2 1SD

More than Covid: Lessons for Supply Chain Resilience from 2020

Hard Truths from a Pandemic

Pharma and others in the life sciences shouldn’t let the lessons learned from the crisis go to waste. As we emerge on the other side, now is the time for a strategic review of supply chain vulnerabilities. Intersys Risk Director Catherine Geyman, takes stock of the situation. 

 It’s been an unprecedented year for life sciences. The pressure on both supply and demand as a result of the pandemic was unparalleled in modern times.

As Peter Ballard, Chair of the British Generic Manufacturers Association (BGMA) put it in the organisation’s review: “At the peak of the first wave in the UK, the pandemic derailed all sense of normality. It thrust healthcare and its supply chains into the forefront of public consciousness as the NHS staff struggled to keep pace with patient demand with the resultant knock-on effect to the medical supply chain.”

It was the perfect storm: huge increases in demand which could not have been planned for by the pre-covid supply base; and massive disruption to supply chains as a result of staff absences and government constraints.

In the UK, generic medicines make up more than three-quarters of all prescribed drugs. According to the BGMA, which represents UK-based generics manufacturers and suppliers, demand for some drugs was five to ten times higher than usual. At the same time, an export ban on active pharmaceutical ingredients (APIs) from India – accounting for about half of APIs used by British generic medicines – came in, in March. BGMA members reported a 24% reduction in supply from the country. Companies also saw a decline of over a fifth in finished products from India.

And it wasn’t just the UK, of course. We’ve looked at shortages in the US earlier in the year. There, our analysis showed that, with a few exceptions, shortages were mainly demand-driven, as the virus saw a clamour to get hold of certain anti-virals, anaesthetics and sedatives. Companies reporting new drug shortages in the US rose from 19 in January to 71 by April. Nor was it just a life sciences issues, even if the industry was hard hit. As the Harvard Business Review recently noted, “The supply shock that started in China in February and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere.”

With vaccines developed, this might be the beginning of the end for Covid. For those in pharma and the broader life sciences, though, it should just be the beginning of a strategic review of  the impacts on their supply chains and what we can do differently in future to minimise disruption.

To quote the BGMA again: “COVID-19 has presented unprecedented challenges, but it would be unforgivable not to learn from those and apply that experience to the future.”

It’s in this spirit that I recently held a webinar on Understanding Risk in Pharmaceutical Supply Chains.

 

Learning the lessons?

Painkiller tablets and 'out of stock' message

 

As that webinar underlines, there are two reasons why we need to take this opportunity to look back before going forward. First, because it might be unwise even now to think the challenges the virus presents are at an end. The vaccine roll out will take time in the UK and elsewhere;  the Pfizer supply chains themselves are already facing disruptions due to out of specification raw materials. Many still fear a third wave of the virus after Christmas. In other words, there are still plenty of opportunities to surprise and disrupt supply chains.

Even if we have managed to put this crisis behind us, the pandemic has shown what is possible. It could happen again. Businesses must prepare for the next crisis, not the last one.

It doesn’t take a worldwide catastrophe to cause supply chain disruptions, however. Well before this spring, drug shortages were again making themselves felt.

Unsurprisingly, there are several reasons for shortages. In some cases, it is other significant events; it’s worth remembering that before Covid the critical concern for the UK was Brexit, something of which we may shortly be reminded (particularly since buffer stocks put in place for Brexit have been used during the pandemic). US supply lines, meanwhile, have been repeatedly hit in recent years by hurricane activity in the likes of Puerto Rico.

But in addition to these significant disruptions to supply, there are a whole host of other, lower-impact, higher frequency events and risks that, if not managed, can escalate over time and eventually cause supply interruptions. They include failures to meet on-time, in-full (OTIF) targets as a result of delivery delays or batches not released; process variability, quality deviations or unreliable manufacturing or API plants; lower profile supply chain disruptions – the result of critical material shortages, facility damage or transit failures; and, finally, product shortages as a result of recalls or other regulatory intervention.

The majority of these events normally do not reach public scrutiny as they are usually handled and mitigated by having safety stock in place. If problems persist, however, that reserve can be eroded and eventually exhausted, resulting in drug shortages.

The critical point is that Covid did not always cause the weaknesses we’ve seen in supply chains. It often just revealed them.

 

Long-term fragility

To understand why, and how drug shortages have re-emerged to challenge the industry, it’s necessary to recognise the long-term trends that have increased companies’ exposure to supply chain disruptions. Three related themes are essential.

The first is the accountant’s drive to make supply chains more efficient that has seen businesses cut back on stock and redeploy backup facilities to productive use. Mergers and acquisitions resulting from the same push for efficiency, meanwhile, have reduced the number of suppliers for crucial APIs, eliminating redundancy in the supply chain. This a relatively simple point: By reducing both the range of alternative providers and internal production capability and stock levels, we’ve inevitably reduced the resilience of supply.

The second is again the result of the determination to cut costs: Outsourcing to countries with lower labour costs, which has focussed industry dependencies on fewer API or contract manufacturers. As noted above, this has resulted in businesses heavily dependent on India, and to a lesser extent China for APIs. Disruption in the event of an export ban or similar block on supplies will almost inevitably be felt downstream. Indeed, this issue rapidly came to the fore right from the start of the pandemic.

The industry’s decision to shift API production to Asia has also increased drug supplies’ reliance on jurisdictions with less mature regulatory systems and, hence, potentially lower standards. There is no escaping that the regulatory track record of China and India is demonstrably inferior to that of the UK, Europe or the US.

In the image below, the colour coding shows the frequency of OAIs (Official Action Indicated notices) issued to facilities by the FDA as a percentage of the number of inspections conducted. In the US and Europe, the likelihood of an OAI was usually below five or six per cent (green and light green). In China and India, the rate was more than eight per cent (red).

Source: research by Intersys Ltd as part of the ReMediES project.

FDA inspection map

That’s a particular issue because while manufacturing of APIs has moved to jurisdictions with arguably lower standards, regulatory requirements have, if anything, moved the other way.

In practice, this can result in disruptions to the supply chain in one of two ways. First, where a compliance failure occurs, the OAI often results in prolonged plant shutdowns for remediation. Second, remediations that result in major changes or new suppliers will take time to be approved by the regulators.

It’s an irony that the regulatory measures in place to protect patients, can count against the patient if something goes wrong in the supply chain and extensive regulatory re-approval is required for the solution to put it right. This is far from being a theoretical risk. An FDA report in 2019 showed that of 163 drugs that went into shortage from 2013 – 2017, 62% followed supply disruption associated with manufacturing or product quality problems. Moreover, there is an interplay between regulatory risks and the other vulnerabilities from long-term trends touched on above. As a result, certain types of drugs are particularly vulnerable to supply chain interruptions.

This is confirmed by both the FDA report and  a study led by Intersys with the Institute for Manufacturing at the University of Cambridge, part of a cross-industry collaboration project called ReMediES, which revealed that 69% of product shortages in 2018 followed OAIs issued to the company reporting the shortage. Both studies showed that the drugs most likely to be in shortage were generic injectables, which require rigorous manufacturing processes but do not provide much profit margin as a result of competition. (A BMGA study of 40 originator products to come off patent since 2014, shows sale prices fell by an average of 89%.) Older drugs with a median time since first approval of almost 35 years are also more to be in shortage.

Price competition for older generics makes investment in robust quality management systems difficult. Moreover, in the event of an interruption that causes the drug to become scarce, low prices and regulatory hurdles discourage new market entrants from correcting the situation.

 

Seeing is believing

There’s one final factor that explains the rising disruption to supply chains, and it’s an important one: The increasingly global nature of life sciences businesses and the complexity of their supply chains has decreased visibility and oversight of them. The result is that both the underlying vulnerabilities and interruptions to supply chains are more difficult to detect and address.

As my presentation outlined, the life sciences supply chain takes in a broad range of other industries. These also vary considerably, depending on whether we consider biologics, traditional pharmaceuticals or medical devices. These bring a range of second-tier suppliers and contract manufacturers into consideration. As a result, life sciences businesses can find themselves exposed to a range of risks to livestock, chemicals or engineered components businesses.

Trying to predict the full range of possible events that could impact these suppliers is arguably impossible. What businesses can do, however, is to identify the most critical suppliers, and determine the value at risk for the critical dependencies of key products.

Understanding where these vulnerabilities lie enables the business to focus on these so that impacts on them are identified and responded to more quickly. Quantifying the value at risk, meanwhile, allows proper evaluation of risk mitigation options through a cost-benefit analysis.

Crucially, neither require you to anticipate what event might cause the disruption – only the vulnerabilities and value at risk. That’s important because it’s what the last year has really shown us: That we need to be ready for anything.

For more on these issues and particularly how SCAIR can help with identifying mapping, quantifying and addressing critical exposures, watch the webinar for free here.

 

Catherine Geyman, Director, Intersys Risk Ltd

Head shot of Catherine Geyman, Director, Intersys Risk Ltd

Going local? Brexit, Trump and supply chain challenges

Businesses have a window of opportunity to make preparations for a more protectionist future. It will not be open forever.

John Major’s intervention aside, a hard Brexit remains the government’s position on the EU, and industries are starting to take note. Today, The Times reports UK car manufacturers are looking to source more parts domestically in response to the threat of tariffs when the UK leaves. Over time, the current ratio of two thirds sourced internationally to one third at home may be reversed.

The concerns are not restricted to the UK, nor worries over Brexit. Going local was a key message at this year’s Davos meeting of the World Economic Forum, as businesses try to pre-empt a Trump-led populist backlash against globalisation.

America first: bringing production home

Furthermore, while they’re particularly exposed, it’s not just car makers in the firing line. According to the new head of the President’s National Trade Council, repatriating international supply chains is a priority for the new administration.

“It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” Peter Navarro told the Financial Times

“We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

In the UK, meanwhile, the Road Haulage Association has warned of fresh food rotting as Brexit “cripples” supply chains – tariffs or no tariffs – if the right customs controls aren’t in place.

Time to future proof the supply chain

We’ve noted before that predictions about the impact of Brexit are particularly unreliable. Confirmation the UK will exit the single market and full membership of customs union have given us some indication of what to expect from Brexit. Until negotiations get well underway, however,  and even then, there will continue to be massive uncertainty as to the final trading relationship, tariffs and customs arrangements in place.

The same is true to an extent in the US. Despite the frantic activity of the Trump administration, it will be some time yet before it becomes clear to what extent Trump wants – and can – pursue an isolationist trade policy.

These are not reasons to wait, though. Rather, they give time to act – and it may end up being a narrow window of opportunity. The speed and size of currency movements since the Brexit vote has already shown how quickly things can move. Likewise, in the US, should some of the more worrying potential consequences of the new administration’s policies and rhetoric materialise, they could do so quickly.

If organisations don’t yet have the confidence to anticipate the future trading landscape, they do at least have sufficient warning that changes are on the way. They need to be building resilience in their supply chain now – ensuring they have the visibility and flexibility to react when the time does come.

The Brexit case for proactive supply chain changes

EU vote has brought risks, but also opportunities. It’s time for a review.

Brexit is among the factors pushing supply chain risks to a three-year high, according to a new survey. The Chartered Institute of Procurement and Supply quarterly Risk Index is up one point on last quarter, and up almost two on last year to reach 80.8 (out of 100).

Two months on from the EU referendum, however, we’re actually little closer to knowing what Brexit will mean.

With the government still not invoking Article 50 (despite some pressure), negotiations for the UK’s withdrawal from the EU have yet to even begin. Theresa May has said it will not be triggered this year, and there is “idle chatter” of further delays – perhaps until after the French and German elections in May and September, respectively.

In the absence of those negotiations, we’ve no way of knowing the likelihood of any of the various options: whether we’ll end up with someone similar to Norway’s membership of the EEA or an entirely new arrangement – a “special status”.

In one sense, then, we’re no further on than when we last looked at this issue. Yet, the intervening period has been useful in a couple of respects.

Supply chain risks sooner rather than later

First, it’s shown us that some of the more dire speculation about the impact of Brexit was just that. Both unemployment and retail sales figures have so far confounded the doom-mongers. There’s no guarantee that will last, but it makes it clear that predictions about the impact from Brexit are unreliable.

It also makes it clear that there’s still time to make changes to respond to a new environment. But that window could close soon.

For many, the risks need to be monitored closely well before the final parting. As a recent report by Credit Suisse makes clear, for instance, many UK exports are not goods being sold to consumers but components used by EU manufacturers’ products. Those EU producers are likely to be reviewing their supply chains now, even if you are not.

“Indeed, the risk is that the current uncertainty surrounding the UK’s membership of the EU may be sufficient for some EU companies to slowly shift sourcing parts of their value chains away from the UK. As such, the negative effects on UK export demand may occur sooner rather than later,” the report notes.

Making the most of Brexit

But Brexit also presents opportunities. Whether it forces you to or not, Brexit probably should change your supply chain – or at least make you consider changes. A lot of companies have taken this to heart, with a survey of retailers by Barclays showing many looking to new sources.

In fact, the Brexit vote – like any big change – is a prompt to review the supply chain to check its robustness and its efficiency, because where there are risks, there are also often opportunities. It’s better to try to address both early on.

Will Brexit break your supply chain?

Brexit means uncertainty and complexity for supply chains, but that shouldn’t stop us planning

We know the result, but not much more. The only certain conclusion we can draw from the EU referendum vote is that we’re in for a period of uncertainty.

In one sense, little has changed. The UK’s membership of the EU continues. David Cameron has said it’s up to whoever replaces him to officially notify the European Council of the UK’s intention to leave and that won’t be until September. Then there’s a two-year period to negotiate a “withdrawal agreement”. Even that may be extended.

The UK could remain in the EU into 2019 or longer.

So, on the one hand, nothing’s changed. On the other, everything is different. Whether you support Brexit or think it’s madness, it’s impossible to deny it’s a game changer.

Volatile supply costs

First, there’s the short-term uncertainty. Even the most optimistic supporter of Brexit would struggle to claim we’re not likely to see increased volatility. Big currency moves, for example, are likely to be a fact of life for some time to come. We’ve already seen a 31-year low against the dollar. One analyst has predicted it could fall to parity by the end of the year.

Whether that’s true or not only time will tell, but less settled currency markets will be here for the foreseeable future. The impact on costs of overseas supplies and raw materials could be significant.

Uncertainty also means investments are more difficult to predict, both for businesses themselves and for suppliers. That could affect plans to support growth.

Longer-term, though, the big questions are likely to be about access to markets.

Diverging Regulation and Standards

This is not always going to be simply about tariffs. There are other dangers in going your own way.

Before the advent of the single market, for example, it was often impossible to sell a product designed for one EU market in another due to different technical standards or regulations operating in each.

Manufacturers must keep an eye on these barriers creeping back in. Existing harmonisation in industries may be eroded over time by new regulations and developments in either Britain or the EU. Equally, they may be the result of intentional protectionist measures introduced by the remaining EU countries.

Like any change in tariffs, this will only become clear with time. There is one thing we can already bet on, though: increased complexity

Increased supply chain complexity

Any arrangement other than membership of the EEA like Norway’s is likely to see either a change in the UK’s terms of trade with the EU or the possibility to change its terms with those outside – and perhaps both.

That could mean opportunities, as well as challenges. But if it means sourcing from new markets or just navigating new rules when buying from existing suppliers, it will mean changes to the supply chain that have to be managed.

There’s no crystal ball, but there are things businesses can do to prepare now.

Most obviously, they need to look at anything they can do to make their supply chains resilient. Dual sourcing from suppliers both within and outside the EU could be one way businesses hedge their bets, for example.

Even before considering that, though, businesses need to make sure they really understand their supply chains, and have visibility across them. That will enable them to consider the impact the various possibilities may have and plan accordingly. It will also mean they can react faster and more intelligently to the dangers and opportunities Brexit brings when the time does eventually come.

Could the Impending ‘Solar Max’ be the Next Disaster to Hit Global Supply Chains?

Compared to sudden economic downturns, terrorist attacks, floods, earthquakes, tsunamis and the like, the next potential disaster to hit global supply chains could be pretty left-field. It's all to do with the cyclic behaviour of the sun...

The sun's magnetic field experiences cyclic changes that peak every 11 years (known as the 'Solar Maximum' or 'Solar Max'). This is when the sun is at its most active and when severe space weather events can occur. The next Solar Max peak periods are due in 2011/12 and are predicted to be the most intense for 50 years.

The strongest solar activity was recorded in1957-8, when the world was on the verge of a technical revolution, having just catapulted Sputnik into space. Back then the US experienced a radio blackout that cut it off from the rest of the world, and voltages in electrical telegraph circuits exceeded 320 volts in Newfoundland. On that basis, the impact of the stronger activity that is predicted for 2012 is almost incomprehensible.

During a Solar Max, violent solar flares (atomic explosions) blast out from the sun at high velocity. Emissions from the flares (charged particles that form an ash cloud) produce intense bursts of radio noise that can disrupt GPS satellite navigation. Aircraft navigation systems can be particularly affected. And with the impending Solar Max having the potential to completely drown out GPS signals, the commercial aviation industry is understandably worried.

GPS is also used for emergency rescues and to synchronise power grids and mobile phone networks. Electrical disturbance and damage to power grids (caused by solar activity) can also result in closures of businesses, schools, hospitals, government buildings, etc. as well as disrupting countless domestic homes.

Returning to commercial aviation, although planes can fly without GPS, power outages can force air traffic controllers to increase the distance between aircraft, and to slow take-offs and landings, causing (massively expensive) flight delays.

Who would have thought that an ash cloud could create so much havoc!

The good news is that the potential threat of a Solar Max can be effectively risk managed. For any Risk Management/DR Specialist worth their salt, a Solar Max represents the ultimate challenge, in fact. A risk management expert will thrive on advising and guiding business infrastructure managers on the best 'solar flare-proof' steps to take, such as the implementation of:

These (and other safeguards) could mean the difference between a company continuing to trade as normally as possible during a Solar Max, or even going out of business altogether.

For any company, having a tailored contingent business-interruption plan in place well before the Solar Max is prudent. But understanding how resilient your global supply chains are to potentially catastrophic scenarios is paramount. With the next Solar Max drawing closer by the day, it’s essential for infrastructure managers to ACT NOW! 

Sources:
http://www.universetoday.com/14645/2012-no-killer-solar-flare/
http://www.newscientist.com/article/dn10189-solar-flares-will-disrupt-gps-in-2011.html
http://www.mekabay.com/infosecmgmt/solarmax.pdf
http://www.solarstorms.org/SRefStorms.html

Australian Floods Impact Global Supply Chains

Mining and Steel – What’s the immediate impact and long term outlook?

The impact of the devastating floods in Queensland will be felt through global supply chains for many months to come. Almost 70% of global steel production is dependent on metallurgical or coking coal. Australia produces two-thirds of global exports of coking coal, of which Queensland accounts for 35%.

Many major mining companies in Queensland have invoked force majeure clauses, which have temporarily released them from contract obligations. This has forced Asian steel-makers who buy the bulk of Australia's coal, to find alternative sources including Russia, China, United States and Canada. These sources and inventories will keep steel plants running normally over the next few weeks, but the real impact on the steel industry will not be known until safety stocks are exhausted.

Lost Sales, Multiple Supply Chain Disruptions

As of 16th January 2011, the Queensland Resources Council estimates that the region’s coal sector has lost sales worth A$2.3 billion since the beginning of December. It is predicted that the disruption could remove over 5 percent of coking coal from world markets this year and inflate prices by a third or more.

About 40 mines in Queensland have been significantly affected by the floods. Many will take weeks to pump out the flood water and rebuilding critical infrastructure may take longer. Major coal rail lines in the Bowen Basin have been submerged or washed away. The port of Gladstone with a daily export capacity rate of 200,000 tonnes stopped receiving coal shipments on 31st December and only now is planning to resume shipments at 50% of capacity (20th Jan). It is likely to be the end of March before it is back up to full capacity.

Recovery from Previous Disasters

The mining industry has shown great resilience in the recent past: ‘In 2008, flooding kept some mines out of action for as much as six months, but others were able to start producing within four to six weeks’, said Andrew Harrington, an analyst at Patersons Securities in Sydney. Mines then increased their outputs to end the year about 10 percent below their original targets.

Insurers ‘Steeling’ Themselves for Major Losses

Yesterday, the 'Insurance Day' in London reported on insurers preparing for a surge of business interruption claims from the mining sector. This disaster looks set to exceed the Australian floods of 2008, which racked up a total of $1.5b in claims.