Globalization and rapid customer demands make it increasingly challenging to keep up with supply chain disruptions, be they caused by natural disasters or political unrest. Businesses must adjust quickly in these instances of uncertainty.
Companies must therefore develop new agility to remain successful – including greater visibility, efficiency and resilience.
1. Pandemics
Since the emergence of novel coronavirus infections, we’ve heard much discussion of pandemics versus outbreaks or epidemics. But what exactly is a pandemic and how does it differ from either outbreaks or epidemics?
Most epidemics remain contained and do not spread globally, but COVID-19 is moving quickly across borders; consequently, the World Health Organization has elevated it to pandemic status – their highest rating possible.
As a result, supply chains across industries and regions have been drastically disrupted. Many factories had to temporarily close while others have had to implement strict lockdowns, leading to long production delays for autos and electronics as well as shortages in meat, medicines and household products. It has caused businesses to shift away from efficiency-focused approaches in favor of resilience-based approaches.
2. Extreme Weather
Even as global supply chains expand, severe weather can still have significant repercussions for global operations. Heat waves, torrential rainfall, and floods can hinder transport routes and cause production and distribution delays that require production personnel to adapt and make alternative plans.
Climate change is increasing the frequency and intensity of extreme weather events, including record-breaking heat waves, floods, severe storms, tornadoes; years-long droughts; and wildfire outbreaks. Attribution science is rapidly progressing to determine to what extent human influence on the climate may have increased risk factors associated with such events.
Recent disruption of global trade and supply chain operations by extreme weather events serves as an illustration of just how extreme climate can impact global commerce and supply chains. Businesses can take steps such as strategic planning, collaboration among staff members, and investing in real-time monitoring systems to minimize their negative impact.
3. Natural Disasters
Natural disasters have the power to have devastating repercussions for local communities and supply chains. Although their impacts can be amplified by human action, natural disasters are driven by forces outside our control that cannot be altered through any single action (unsystematic uncertainty).
Natural disasters have the power to impact global production and trade significantly, especially businesses that rely heavily on foreign inputs for production and trade. According to one recent study, firms that were exposed to earthquake-affected areas underperformed those without such exposure.
Natural disasters have the power to wreck infrastructure and transportation routes, leading to delayed or cancelled cargo flights and deliveries. Companies can avoid this risk by devising backup plans for emergency situations as well as looking for opportunities to strengthen their supply chain’s resilience.
4. Political Unrest
Political unrest can significantly wreak havoc on global supply chains. This may result in port and airport closures and increased production and transportation costs for raw materials and finished goods.
Political instability can wreak economic havoc by dissuading consumers and leading companies to reduce output, as consumers fear uncertainty and production stops altogether. Furthermore, political unrest reduces foreign investment while raising inflation rates further.
This year has witnessed widespread anti-government protests in advanced economies where they are uncommon, coups in emerging and developing nations and constitutional crises in several of them. While economic factors play a significant role in political unrest, evidence also points toward sociopsychological traits as contributing factors as well as geopolitical ones that interact with each other – thus necessitating businesses developing strategies to mitigate political instability risk by investing in contingency planning strategies and investing in risk mitigation plans.
5. Trade War
Proponents of protectionism contend that well-crafted policies can assist domestic industries to expand, create more jobs and overcome a trade deficit. Unfortunately, however, such costs often come at the expense of consumers.
Local sourcing helps businesses reduce these expenses, saving both money and time on logistics by working with suppliers nearby. Furthermore, this strategy allows them to avoid supply chain disruptions which could otherwise incur significant losses.
Short term, protectionist policies may help infant or small industries compete with foreign producers; however, higher tariffs are costly for consumers and can actually hamper economic growth and job creation. Long term however, protectionism harms its intended beneficiaries by restricting markets, hampering growth, and impeding cultural exchange.
