Blind to Risk: Supply Chain Underestimates the Threat of War

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Supply chain risk management has enjoyed a rise in prominence over the past decade as events like Japan’s tsunami, Thailand’s floods and the US west coast port strike have shone a light on the value of resilience. Hot risk factors today include data security, logistics disruptions and trade policy uncertainty.

Oddly, however, concerns about war remain largely off the radar. Are we fooling ourselves? And if so, what should we do differently?

Business as Unusual

Data collected by SCM World in September 2016 from 1,409 supply chain professionals around the world put the risk of ‘war, terrorism or other geopolitical issues’ very low on the list of worries. Ranked by the percentage declaring themselves “very concerned”, the threat of war was 12th of 13 separate risks considered in the survey, below things like counterfeit products and natural disasters.

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Does this make sense at a time when Korea, Syria, Ukraine and the southern Sahara are all making headlines with armed conflict either underway or impending? Does it make sense at a time when terrorist attacks, however low-tech, have become downright commonplace? Does it make sense at a time when nationalism is clearly and ominously rising everywhere on earth?

Foreign Policy magazine lists its top ten conflicts to watch in 2017. In addition to some like Afghanistan and Yemen, which are not important to most companies’ supply networks, the list includes Mexico and Turkey, both of which are important.

For supply chain leaders, this demands attention.

Executive as Statesman

A recent article published by the global intelligence firm Stratfor caught my eye last week with a subheading titled “the Death of the Country Manager”. The article’s author is Mike Rosenberg, a professor at the highly regarded IESE Business School in Madrid and a former AT Kearney consultant.

His characterization of the traditional country manager portrays a well-respected generalist: competent as a sales leader, operational executive and diplomat. Connected and influential among government, financial and business leaders, this country manager was able to foresee danger and make contingencies.

Rosenberg’s concern is that modern business organizational structures have reduced the importance of country general managers in favor of global functional leaders. At the same time, he argues, short-termism in business thinking and a lack of political science or history education among fast-track MBAs means that executives on the ground are ill-equipped to read the signals of political trouble.

For supply chain leaders, especially those running global organizations with center-led functional executives in charge of manufacturing, sourcing and logistics, the temptation is to ignore politics as an externality and concentrate instead on the known-knowns of costs, capacity and lead-times. Supply network models that exclude fuzzy political risk factors might miss the differences between say, Turkey and Poland or Venezuela and Colombia.

Supply network optimization for 2017 and beyond is much more than a math problem.

Hi-Tech and Apparel Feel the Heat

When we cut our survey data by industry, there are prominent differences. Both fabric & apparel and hi-tech executives are substantially more likely to cite geopolitical worries than are supply chain leaders in CPG, chemical or industrial companies.

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These two sectors have long sourced from far-flung supply bases, originally developed to tap low-cost labor pools. Unrest in such places sometimes arises locally with unions or other activists halting production. Sometimes the challenge comes from NGOs threatening brand value with ethical sourcing criticism. Such rumblings might be better viewed as warning shots pointing to more fundamental problems rather than short-term crises to be managed.

Hi-tech, with its Electronics Industry Citizenship Coalition, and apparel, with its Fair Labor Association and Sustainable Apparel Coalition, are reacting wisely to the human welfare pressures that often drive political upheaval. Too often, however, the work of such groups is limited to compliance and brand protection matters. This is a missed opportunity for operations leaders who need to sharpen their sensitivity to political matters.

Other industries may have less direct exposure to global suppliers but everyone should widen their thinking about supply chain risk. After all, the war of 1914-18 was supposed to be the “war to end all wars”.

Now we call it World War I.

Author Kevin O'Marah

Chief Content Officer, SCM World

More posts by Kevin O'Marah