The risk of supply chain disruptions has increased significantly in today’s globalized economy. Nowhere is this more apparent than in the manufacturing industry, where just-in-time production has, at least previously, become the norm.
This means that companies must be able to quickly identify and respond to various types of risk factors in the supply chain that could impact the production of their products.
An enterprise risk management system can identify potential risk factors and track their real-time impact on production. It can help assess the potential financial impact of risk events and develop solid risk management plans to mitigate them.
This article discusses how your manufacturing organization can prioritize and implement a risk management system to counteract the various challenges and evolving risks in the global supply chain.
Key Challenges in Supply Chain Risk Management in the Manufacturing Industry
Many factors can disrupt the supply chain and impact business operations in the manufacturing industry—from political turmoil and natural disasters to supplier issues and changing consumer demand. As a result, risk management has become an essential part of business in manufacturing and potentially a competitive advantage.
However, managing risk is not always easy, and your organization must consider and overcome several challenges interwoven with the modern supply chain.
The Acute Need to be Cost-efficient
Since the focus of the manufacturing industry is to save money wherever possible to increase the bottom line, this can lead to decision-making aimed at reducing costs to the business. While these decisions seem cut-and-dry in theory, the reality is that they are not always made to reduce potential risks that can arise.
While cost efficiency is at the forefront of business operations in the manufacturing industry, it becomes increasingly more important for these organizations to have a clear understanding of their supply chain risks and take measures to mitigate those risks as much as possible. When these risks turn into issues, they often result in significant cost consequences.
The effects of the COVID-19 pandemic continue to disrupt global supply chains, causing shortages of goods in the manufacturing industry. Air freight disruptions are occurring due to flight cancellations and rising fuel costs. Ocean freight faces delays as ports are closed or operating at reduced capacity due to labor shortages. And land freight faces delays based on labor shortages and rising fuel costs. These disruptions contribute to unreliable supply chains, causing production issues in the manufacturing industry.
International tensions can affect the manufacturing and consumer sector in several ways. For example, if a country experiences an economic or political crisis, it may impact the supply of goods coming into or out of that country. These tensions can even ultimately result in sanctions impacting on the relevant flow of goods.
To mitigate geopolitical risk, many manufacturers look to diversify their suppliers by adding new vendors in new regions. But once new vendors from different countries are introduced into the supply chain, if thorough risk assessments are not performed, then this could become a door for introducing new risks.
The ongoing Russian invasion of Ukraine is a case in point.
The conflict has disrupted the flow of materials and components, causing delays and shortages in the European manufacturing industry and supply chain. It has also driven a European energy crisis resulting in a spike in costs and the need to re-evaluate supply chain activity. As a result, many companies have been forced to change their risk management strategies.
Many companies have diversified their supplier base to reduce dependence on one region. Others have stockpiled critical components to buffer against future disruptions.
The crisis in Ukraine is a reminder of the need for manufacturers to be prepared for the unexpected. By mitigating risk, companies can safeguard their supply chains against future disruptions.
China-US trade wars
The current trade war between the United States and China is another example of international tension affecting the manufacturing and consumer sectors.
The China-US trade wars have resulted in tariffs on exported goods, hurting manufacturers as demand for their products has decreased. It has also caused a price hike on consumer goods as companies pass on the increased cost of production to consumers.
The trade war has also led to tariffs on Chinese imports, making them more expensive for American companies and causing many manufacturers to look for alternative suppliers in other countries.
According to experts, the China-US trade war’s profound impact on the manufacturing industry’s global supply chain will be felt for years to come. Risk management in manufacturing will continue to be an essential issue for companies as they navigate the uncertain global economic landscape.
Increasing Regulatory Pressures
Manufacturing companies are increasingly facing regulatory pressures to manage modern slavery within their multi-tier supply chains and to ban products made with forced labor.
In the United States, the Uyghur Forced Labor Prevention Act took effect on June 21, 2022 and prohibits the importation of goods produced in the Xinjiang region of China.
The United Kingdom’s Modern Slavery Act 2015 requires all companies operating in the country with a turnover of more than £36 million to publish a slavery and human trafficking statement for each financial year, describing their actions to address these issues.
The German Supply Chain Due Diligence Act takes effect on January 1, 2023 and requires companies operating in Germany to conduct due diligence throughout their supply chains—identifying and addressing any labor issues such as forced labor or human trafficking risk. This law is designed to help protect workers throughout the supply chain and ensure that products are made ethically and responsibly.
Regulations like these are forcing manufacturing companies to take a closer look at their multi-tier supply chains and identify where potential risks of modern slavery or forced labor may exist. This can be a daunting task, but companies must understand the scope of the problem and take steps to address it.
Some measures that can be taken include conducting risk analysis and assessments, internal audits of suppliers, and training employees on how to identify and report instances of slavery or human trafficking.
Increasing Consumer Expectations
There is also a noticeable shift in consumer behavior with increased environmental awareness and strong demand for companies to take sustainable and ethical steps to preserve it.
Consumers are increasingly interested in the environmental, social, and governance practices of the companies they support. They want to know that their purchases are not only made ethically but that the products they buy also reflect the company’s values.
Meeting consumer demands for conscious consumerism and ethical supply chain processes requires that a manufacturing company’s ESG standards are aligned with its values. A company’s ESG standards provide a framework for measuring its sustainability and social impact.
When these standards are aligned with a manufacturer’s values, it demonstrates to consumers that the company takes its responsibilities seriously and is committed to being a good corporate citizen. This builds trust and strengthens relationships with customers. It also helps a company attract new customers who share its values and want to support businesses that reflect them.
Exiger can help your organization with ESG by providing a platform that automates your supply chain ESG reporting process and improves multi-tier supply chain transparency — empowering your team to meet consumer demands for conscious consumerism and ethical practices. Exiger can also help reduce risk by providing organizations with a comprehensive supply chain risk view to allow them to enhance their business performance.
Contact us today to find out how.
Evolving Supply Chain Risk Areas in Manufacturing and Consumer Industry Sectors
To identify and mitigate risks, manufacturing companies must be aware of the ever-changing risk landscape. Some of the critical risk areas that companies should monitor include:
The majority of the carbon footprint of an organization lies in its supply chain. The emissions can come from producing goods and services, transportation, and using products and services. Many organizations are working to reduce their carbon footprints by looking at their supply chains to identify and reduce emissions.
In recent years, consumers have become increasingly interested in the sustainability of their products. They expect companies to be more transparent about their supply chains and to take steps to reduce the environmental impact of their products. This trend is likely to continue in the years ahead as consumers become more aware of the risks posed by climate change. This makes it more likely that companies demonstrating a commitment to sustainability will succeed in the competitive consumer market.
Climate risk also represents a further challenge to organizations in that it is creating new potential risks within their supply chain.
The cyber threats to the supply chains of manufacturing companies are increasing with many ransomware attacks occurring.
Hackers can also gain access to a company’s systems by breaking into the networks of its suppliers or other companies with which it does business—giving the hackers access to confidential information or even controlling critical systems.
SolarWinds is a case study of a company hit by a cyber attack, where hackers gained access to the company’s systems through the networks of its suppliers. This led to a breach of confidential information and control of critical systems.
The cyber attack on SolarWinds highlights the potential impact of cyber security risks and the importance of multi-tier supply chain risk management. By gaining visibility into the supply chain with a cyber risk management platform, companies can identify potential risks and take steps to mitigate them.
Exiger helps manufacturers protect their supply chains from cyber attacks by looking at the cyber exposure on a multi-tier basis. Exiger looks at risk factors and vulnerabilities throughout the supplier ecosystem that could precipitate a cyber attack and its potential consequences if one were to occur.
If a company has high cyber exposure, there is a greater chance of a cyber attack, and the consequences will be severe. Exiger can help companies reduce their cyber exposure by identifying and addressing cyber vulnerabilities in their supply chains.
Improving Risk Assessment in Manufacturing and Consumer Sectors
Despite the importance of risk management in manufacturing, risk assessment is often neglected in favor of more immediate concerns. This can lead to severe problems down the line, as small risks can snowball into larger ones if they are not adequately addressed.
Several ways to improve risk assessment in manufacturing include developing a clear framework for looking at third-party risk and harnessing the power of technology and data to improve transparency.
A Clear Framework for Looking at Third-Party Supply Chain Risk
Trying to manage risk in an increasingly complex global supply chain is a daunting task, but companies need to do so to safeguard their business performance.
According to the Business Continuity Institute, 40% of disruptions during the COVID pandemic come from suppliers that are below tier 1/direct suppliers in the supply chain. This is a significant percentage, highlighting the importance of conducting due diligence on all critical multi-tier suppliers, not just those at the top of the supply chain.
In 2021, Deloitte released the survey results on the state of global supply chain risk management. The survey found that while most companies are aware of the risks in their supply chains, few have taken steps to address them.
In addition, the report found that a lack of transparency is often a significant obstacle to assessing and managing risk. It then recommends that companies take a holistic approach to risk management, which includes evaluating all aspects of the supply chain on a cross-functional basis.
Manufacturers should take a proactive approach to risk management and establish clear protocols for identifying and addressing risks. They should have a robust reporting system so problems can be handled quickly and effectively. By doing so, companies can minimize the risk of disruptions to their operations and protect their bottom line.
Companies with a focus on manufacturing should also establish a clear risk management framework and responsibility matrix. Exiger has built out a holistic model called TRADES to help clients establish or improve their risk management framework programs by quickly identifying threats and vulnerabilities while minimizing third-party and supply chain risk management gaps.
Technology and Data are Needed to Improve Transparency
The complexity of global supply chains makes it difficult for companies to understand their entire operation clearly. This lack of transparency can lead to severe problems, making it challenging to identify and address risks. New technologies, together with appropriate data feeds, can help improve supply chain transparency by giving companies visibility into their multi-tier supply chain operations.
Combining data on supplier performance with relevant risk data can improve risk management in the manufacturing sector — allowing organizations to identify trends and issues that may lead to problems. This information can then be used to develop strategies for addressing these risks.
When assessing risk, it is crucial to verify that potential suppliers are not sanctioned by the United States or associated with sanctions. Sanctions lists can have a significant impact on business. It is vital to ensure your company has an effective sanctions screening process in place to avoid potential penalties and fines.
Sanctions screening cannot be done manually, as there are too many potential suppliers and high-risk jurisdictions. Technology and data are necessary to automate this process and quickly identify any red flags that need to be addressed.
Exiger’s screening tools and a team of experts can help your business build its sanctions screening capabilities and stay ahead of the curve regarding compliance with sanction regulations.
Contact us today to learn how we can help you protect your business from the risks associated with doing business with sanctioned entities.
Mitigate Supply Chain Risks in Manufacturing with Exiger
While risk management is an integral part of business in the manufacturing sector, it can be difficult to overcome the unique challenges that come with it. By implementing a multi-tier supply chain risk management system, manufacturing organizations can gain the visibility necessary for informed decision-making about their supply chain and avoid disruptions to business operations, regulatory fines, and reputational damage.
Exiger’s Supply Chain Explorer is a tool that helps companies with risk identification and mitigation in their supply chains. Supply Chain Explorer allows companies to see their suppliers and business partners in one place, enabling them to quickly assess the risk exposure of each supplier and mitigate any potential threats. It is a valuable tool for manufacturers who want to reduce the risk of disruptions or other financial impacts on their business operations. And with the acquisition of Supply Dynamics, companies are now able to trace their products back to the individual parts and materials that were used to make them and the risk exposures that these represent.
Supply Dynamics is a highly effective and efficient supply chain collaboration platform for tracking, tracing, and choreographing the purchase and supply of subcontracted products, parts, raw materials, and ingredients. Are you ready to take your manufacturing risk management system to the next level? Contact us to learn more about Supply Chain Explorer and Supply Dynamics.