Globalization is slowing down, and the world is doing everything to fix it and reduce modern-day supply chain risks. Here’s the proof:
The US government has announced a dramatic increase in the tariff rate on electric vehicles under Section 301, raising it from 25% to 100% in 2024.
Similarly, the EU announced that they’re drafting plans to impose duties on China-made EVs of up to 36.3% which led to a sharp decline in Chinese exports to the EU.
Governments and trade institutions are becoming acutely aware of the global/geopolitical shifts and their associated risks. For example, Bank of Canada Governor Tiff Macklem emphasized the need for Canada to invest in trade infrastructure and reduce trade barriers, as shifting supply chains invites risks along with possible opportunities.
As unpredictability grows, supply chains are exposed to various threats, including natural disasters, geopolitical instability, cyberattacks, and labor strikes that can cripple the supply chain infrastructure.
To navigate these challenges, companies must implement robust contingency plans that address potential disruptions and safeguard operational continuity. Logistics intelligence is a key element in building these resilient plans, and it plays an increasingly crucial role in modern supply chains.
Role of Logistics Intelligence in Modern Supply Chains
Logistics Intelligence uses advanced data insights, predictive analytics, and scenario modeling to help businesses optimize their supply chain operations, enhance efficiency, reduce costs, and mitigate risks.
Predictive analytics and data insights help identify vulnerabilities and anticipate future challenges, allowing companies to adjust strategies proactively.
Contingency planning: Identifying Supply Chain Risks And Enhancing Resilience
Logistics intelligence tools help identify supply chain risks by utilizing data insights and predictive analytics to detect potential vulnerabilities before they escalate into significant disruptions. Here’s how:
How To Categorize Supply Chain Risks To Develop Targeted Contingency Plans
Internal Risks
Operational Inefficiencies
A delay in order fulfillment is an internal risk caused by poor warehouse management. It can be mitigated by implementing efficient inventory tracking systems.
For example, BOHECO, an Indian hemp company, faced delays in order fulfillment due to inefficient warehouse management and outdated inventory software. By switching to Zoho Inventory, they streamlined their inventory management, reduced order fulfillment delays, and enabled effective remote operations during COVID-19. This transition also supported their global expansion and enhanced their ability to meet customer expectations.
Human Errors
Mistakes by employees, whether due to insufficient training, miscommunication, or manual errors in data entry, can disrupt the supply chain.
Supply chain businesses can virtually eliminate human errors by automating and optimizing their processes.
Example: A miscommunication in order quantities, leading to stock shortages or overproduction, can be addressed through better training and automation.
Cybersecurity Vulnerabilities
Cybercriminals take advantage of vulnerabilities to gain access to valuable information.
In a recent high-profile cyber-hacking case, cybercriminals stole user credentials to breach Okta’s security and gain access to their customers’ data. Here’s how Okta is tackling it with a security contingency plan to fight future attacks.
External Risks
Political Risks
The United States has imposed an embargo on Cuba since 1960, which forbids most American exports and imports to Cuba. The trade embargo includes a ban on Cuban imports to the US, an export ban on US goods to Cuba and restrictions on travel between the two countries.
However, this doesn’t put a stop on exports to Cuba. In fact, they surged from $28.6 million to $45.2 million, seeing a 58% jump from November to December of 2023. Pearl Merchandising & Distribution is a Miami-based company which is also the exclusive distributor in Cuba for many of the top U.S. food, beverage and consumer goods companies.
Despite political risks, companies like Pearl succeed because they understand where political risks intersect with their supply chain. They align suppliers and sub-suppliers to ensure smooth operations, even in times of political unrest.
Legal Risks
Changes in laws, regulations, and compliance standards—especially around labor, environmental standards, or data protection—can affect supply chain activities.
New environmental regulations or non-compliance with labor laws may require changes in sourcing or manufacturing processes, impacting the supply chain.
For example, the Canadian unit of Inditex’s fashion brand Zara is facing public scrutiny due to alleged forced labor within its supply chain.
Environmental Risks
Natural disasters such as hurricanes, earthquakes, floods, or pandemics can damage infrastructure, disrupt transportation routes, and lead to supply shortages.
In a 2022 McKinsey report, 45% of shippers say they either have no visibility into their upstream supply chain or can see only as far as their first-tier suppliers. Limited visibility becomes particularly problematic during environmental crises.
For instance, if a hurricane disrupts transportation routes, companies with only first-tier supplier visibility may struggle to understand the full extent of the disruption in their upstream supply chain, making it harder to manage and mitigate the impact of the disaster. Improved supply chain visibility is crucial for better preparedness and response to environmental risks, helping companies navigate and recover from such disruptions more effectively.
How to Build a Supply Chain Contingency Plan to Ensure Business Continuity
Risk Communication Protocols
Developing a Rapid Response Team and Practical Decision-Making Hierarchy
Creating a decision-making hierarchy ensures that actions are taken swiftly and there is no ambiguity regarding who is responsible for each step.
Establishing Communication Protocols for Supply Chain Risk Management:
Communication protocols outline who communicates with whom, what information needs to be shared, and how frequently updates should occur. This helps reduce confusion, delays, and inefficiencies during critical moments.
Here’s a more detailed explanation with examples:
There should be clear guidelines for when to escalate an issue to higher management or other departments. The communication protocol should trigger more frequent updates or additional personnel involvement if a disruption escalates.
Supply Chain Simulation and Stress Testing
Running simulation models for “what-if” scenarios:
This involves running models to explore “what-if” scenarios and assess potential vulnerabilities. Companies can evaluate their preparedness and response strategies by simulating disruptions like supplier failures or natural disasters.
For instance, a manufacturer might use logistics intelligence tools to simulate a critical supplier shutdown to test how quickly alternative suppliers can be activated.
These simulations analyze trend data and test risks like port congestion or transportation delays. For example, a logistics company could use logistics intelligence tools to simulate the impact of a hurricane on shipping routes, ensuring they have rerouting strategies in place before a real disruption occurs.
Leveraging Logistics Intelligence in Real-World Contingency Planning
Case Study: How Stuller Ships 5000 Packages a Day and Runs a Next-Day Delivery Model Successfully With the Help of Logistics Intelligence
Problem: Stuller lacked visibility into their shipping data
Solution: They forecasted future spend using Sifted dashboards like Spend Trend Summary and GRI Impact Analysis, and set rates that encouraged their profit margins.
Outcome: Stuller made the informed decision to raise their flat rate for Stuller First members.
Implementation: In Sifted’s Spend Trend Summary, Stuller can see an annual and monthly breakdown of their total shipping spend and cost per pack, plus an overview of their spend by service type. All of this helps them to understand how much to raise their flat rate each year.
“My forecasting has gotten way better because of the data that’s available through Sifted. I can break it down by service levels, look at our spend trend, and get the costs pretty close. We’re making decisions based on that.”
The above approach strengthens risk mitigation and enhances supply chain resilience. Now let’s look at risk categorization to streamline monitoring and create early-warning systems.
