Resilinc EventWatch: Top Risks to Supply Chains in 2018 Were Extreme Weather, M&A Activity, Brexit and Explosions

With deadline questions looming about Brexit and high levels of uncertainty about U.S.-China trade negotiations still hanging over global markets, risks to supply chains may already seem well above average.

As reported by Resilinc’s EventWatch 2018 annual report, however, some of the greatest risks to supply chain operation may be something that stakeholders don’t realize.

Natural disasters in the United States and the Asia-Pacific region accounted for the top five most significant supply chain events in 2018, affecting over 25,400 manufacturing sites for a combined total of over 183,000 different component parts used in downstream production. In the U.S. alone, the powerful January 2018 “bomb cyclone” affected 9,300 sites and the production of over 43,166 parts. Most significantly for supply chain managers, affected sites had an average recovery time of 25 weeks before returning to full pre-event production levels.

Less catastrophic but of equal or greater impact in the long term were 445 merger and acquisition events that occurred in 2018, up from 324 in 2017. Ownership and management changes can disrupt supply chains in the event that new decision makers choose to exit non-core business lines or sell strategic assets to finance other initiatives.

Resilinc’s EventWatch monitors news sources, social media and press releases, and it works closely with manufacturers, customers and suppliers to provide data as a service (DaaS) to more than 15,000 customers around the globe.

Using machine learning and cognitive risk analytics, EventWatch drills down to site- and parts-level view of the supply chain landscape, providing over 2,600 alerts in 2018 and over 900 events mapped to partner sites that required more in-depth impact assessments.

Planning for Disruption

Notably, 66% of sites flagged for events were manufacturing partners, and of those, only 12% had prepared alternative upstream sourcing and production capacity to meet the needs of customers in the event of a major disruption.

Resilinc strongly recommends and works with customers to develop mitigation planning, considering multiple scenarios from best to worst case and developing alternative options for shifting production and making regulatory considerations contingent on how real-world events unfold.

“One of the most important strategies that supply chain professionals can use to manage these highly fluid situations is scenario planning and preparation,” said Resilinc CEO Bindiya Vakil, in her introduction to the study.

“I would recommend developing a comprehensive understanding of the new approaches that are now available. Artificial Intelligence (AI) and data science advances, their advantages, disadvantages, costs and complications can have a profound impact to supply chain professionals in 2019 and beyond.”

The study said cyberattacks, especially against government agencies and basic materials producers in the U.S. and globally, saw a substantial increase in 2018. Most notably, the city of Atlanta experienced ransomware attacks against multiple agencies, including the Watershed Department and the Municipal Court, resulting in over $2.7 million paid to contractors and other cybersecurity experts tapped to restore functionality to the network.

Major corporations like Boeing and Taiwan Semiconductor Manufacturing Co. also experienced attacks that directly affected their production capacity, the latter estimating losses of $157 million from full stoppages at three production lines along their supply chain.

Online threats are also growing in the medical devices industry, forcing Medtronics to issue a voluntary recall of implantable cardiac devices after identifying vulnerabilities in internet connections used to update device software.

Tariff Uncertainty

Resilinc identified a particularly acute need for scenario planning for partners operating in Chinese markets and manufacturing centers based on uncertainty over the state of tariff and trade negotiations between China and the U.S.

Resilinc identified 278 sites supplying over 5,000 companies that could see their business affected by potential tariff increases.

Risks to lower-tier suppliers, who provide parts and raw materials for direct suppliers to many U.S. companies were identified as especially hazardous and difficult to identify, requiring in-depth analysis of all levels of the supply chain to identify choke points and prepare preferred alternatives.

One potential option to mitigate the impact of looming tariffs is a request for one-year exclusions in the event that materials can only be sourced from Chinese suppliers or where sourcing from other countries would cause significant economic harm. This route is less than ideal, however, as only 984 exclusions had been granted out of more than 11,000 requests — of those, 1,258 were denied and the remainder had not received decisions as of January 2019.

As hopes for a negotiated Brexit dwindle ahead of the March 29 deadline, companies importing or exporting from the EU to the UK faced tariffs as high as 4.5%.

In a webinar cited in the study, Dr. Ke Han, of Imperial College London’s Center for Transport Studies, warned that lines up to 30 miles long could appear at Britain's two busiest ports of entry, through which more than 30% of food makes its way into the country, setting the stage major spoilage and loss of perishable goods.

Small- and medium-size sub-suppliers to automotive and other industries are at particular risk, often relying on larger corporations with historically thin margins, with many having no experience trading outside the EU and lacking much of the legal and administrative infrastructure to do so.

Fires and explosions caused 380 EventWatch alerts in 2018, more than one per day, with 78% concentrated in the automotive industry. A single fire in Eaton Rapids, Michigan, forced production stops or adjustments for Mercedes-Benz, GM, BMW and Fiat Chrysler, while Ford was so severely impacted that production was shut down on its most profitable vehicle, the F-150 truck, for two weeks at three separate facilities as a result of the disruption.

As electric vehicles batteries with huge energy density and chemical contents increasingly become the focus of major automakers, fire risks are expected to become even more numerous and impactful over the coming years.

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