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Three supply chain risks that will hurt your bottom line in 2023

Image by ArtFamily sourced from Adobe Stock

Our global supply chain is complex and ever-changing, and procurement leaders are under pressure to stay ahead of risk while keeping costs low and vendors in compliance. The cadence and impact of supply chain shocks from weather disasters, supply shortages, supplier challenges and emerging compliance requirements are increasing, and there’s no crystal ball to show what lies in store any given day. Fortunately, predictive supply chain risk management solutions like Everstream Analytics offer the next best thing: clear visibility and predictive insights to help procurement leaders avoid disruption, navigate regulatory compliance and save their company millions.

Sub-tier insolvencies put supply at risk while increasing costs

Global insolvencies are increasing due to worsening economic conditions, leading to significant supply disruption worldwide. When upstream suppliers go bankrupt, procurement teams will spend time and money researching and onboarding new suppliers while incurring additional costs for expediting materials or missed delivery deadlines. Or, worse, production will stop completely.

Supply chain risks
            Everstream Analytics

In 2022, Everstream Analytics tracked over 1,400 insolvencies across China, Germany and the United States. Overall, manufacturing and electronics companies are suffering the most, and China accounted for a higher percentage of insolvencies in electronics, automotive and chemicals than the US and Germany combined.

The threat of insolvency in 2023 for small and midsize operations looms over the business landscape, but larger companies are better positioned with buffers to handle this turbulence. Even so, unexpected closures can rapidly lead to a bullwhip effect that could halt production. To prepare, procurement leaders must actively monitor their supply chain with risk management technology to assess dependencies, identify single-source bottlenecks and add alternative suppliers and partners where necessary.

Weather disaster frequency and magnitude disrupt material availability and delivery

Weather disasters are widely recognized as a leading cause of supply chain disruption, and, with climate change, the number of weather-related incidents has increased exponentially. The National Centers for Environmental Education tracks billion-dollar disaster weather events in the United States. Last year, it calculated 18 US weather events occurred with total losses exceeding $1 billion each.

With the growing frequency and magnitude of catastrophic disruptions in nearly every category — from hurricanes, flooding, droughts, tsunamis, extreme heat and cold to wildfires and severe wind — companies must take a forward-looking approach to protect and strengthen their supply network. They can do this through automated multi-tier visibility and risk management solutions that visualize their supply base and monitor commodities to inform sourcing decisions.

For example, Pakistan, a major rice producer, suffered severe flooding last fall, putting its wheat planting season at risk and lowering projected rice output to 8.3 million tons, well below the previous year’s total of 9.1 million. This level of predictive supply intelligence can be the difference between experiencing shortages or price spikes and pre-buying or diversifying suppliers for a competitive advantage.

Supply chain laws could cost you millions in import seizures and noncompliance

There’s a growing number of supply chain regulations, such as the German Supply Chain Act, the American Uyghur Forced Labor Prevention Act (UFLPA) and the upcoming European Due Diligence laws that will hold manufacturers responsible for human rights violations or environmentally damaging practices anywhere in their supply chains.

Supply chain risks
      Everstream Analytics

Some of these laws have already come into force, with manufacturers feeling the impact. Following the implementation of the UFLPA, non-compliant imports seized by the US Customs and Border Protection surged 63%, totaling 2,692 seizures worth $806 million.

Supply chain law compliance will depend on a company’s ability to visualize its entire value network down to the last tier and demonstrate financial, contractual and other liabilities it may have towards suppliers and partners. Supply chain managers must have access to dynamic risk assessments and ongoing monitoring to flag compliance risks. For example, the official UFLPA banned entities list only includes 31 companies, but Everstream’s researchers have identified at least 177 total sub-tier suppliers linked to forced labor in Xinjiang. Savvy companies will leverage automated technology solutions to keep in front of compliance issues.

Navigating the global supply chain is no easy task, and it’s only becoming more difficult. Supply chain risk management is no longer a nice to have, it’s a business imperative. Automated supplier visibility and risk management technologies are the key to assessing and mitigating the leading supply chain risks before they become costly disruptions. The world’s most progressive procurement leaders are partnering with providers like Everstream Analytics to strengthen their networks, keep their companies ahead of the compliance curve and protect the bottom line.