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[BAROMETER] Supply Chain Risks for 2024: How Can Businesses Develop Resilient Strategies?

[BAROMETER] Supply Chain Risks for 2024: How Can Businesses Develop Resilient Strategies?
In this second article, we present the solutions on what businesses should do to secure their supply chains and make them more resilient. (AdobeStock)

The world has entered a phase of geopolitical instability marked by the proliferation of regional conflicts (Ukraine, Red Sea, South China Sea). Market research firm KYU asked 1000 managers in the fields of supply chain, purchasing, and risk management in various industries (aerospace, automotive, luxury industry) about where they stand in the face of these new challenges. They identified 10 supply chain risks for 2024. In this second article, we present their solutions on what businesses should do to secure their supply chains and make them more resilient.

READ PART 1: What Are the 10 Supply Chain Risks for 2024?

Faced with these 10 risks, international companies have no choice but to reorganize their flows and increasingly relocate their supply chains to cope with this instability. KYU has identified 4 solutions for international organizations.

1/ Evaluating Suppliers

The challenge for the most advanced companies is to evaluate suppliers at different levels of the value chain with sufficient precision to truly estimate the risks, particularly those related to their physical and geopolitical environment. The difficulty lies in the ability to go beyond tier 1 and have sufficient information on the sources of commodity supply at tier 3 or even beyond.

These assessments are intended to be integrated into procurement strategies, but this requires buyers to mature in selecting the right data sources, building their analysis framework, evaluating results, and determining control measures.

At the other end of the supply chain, companies also contribute to detrimental “bullwhip” effects and need to work on improving their demand forecasting models by leveraging more data and artificial intelligence algorithms.

2/ Deploying Traceability Tools

The performance of suppliers in terms of both quality and availability remains the foundation of supplier management. This involves detecting potential issues to take action to reallocate resources or secure stocks. The idea is that buyers must collect more information to identify weaknesses, meet compliance requirements, and uncover new value-creation opportunities.

Advanced approaches include implementing supply chain event monitoring tools. These tools rely on analyzing public information on transactions, press releases, and local institutions. They also utilize private data sources and teams in the sourcing countries. This wealth of information is crucial for companies seeking a more resilient supply chain. It provides strategic insights, financial data, and traceability information on critical components or materials flows.

3/ Developing Multi-Local Supply Chains

Dual sourcing remains the primary lever for transforming supply chains across all sectors. The choice between local sources as part of a “nearshoring” strategy must also prioritize reducing exposure to risks. Sourcing from countries close to production zones ensures a minimum production level in case one source is disrupted. It reduces replenishment lead time and prevents overstocking in highly uncertain markets and deterioration of supplier relations. It also helps cut the carbon footprint associated with logistics (Scope 3 of the company’s carbon footprint).

Another transformational focus is on the “make or buy” decision in the value chain. Beyond profitability, companies need to reconsider this decision in terms of supply chain control while remaining as competitive as possible.

4/ Self-insuring to Be Less Dependent on Markets

Companies need to seek complementary solutions to protect their balance sheets in case of claims. Due to limited evolution in insurers’ offerings and unfavorable changes in coverage terms (such as increased deductibles, reduced capacities, more exclusions, and rising premiums), businesses need to take control of their destiny.

Self-insurance is a complement when market solutions are challenging to find. For instance, facing a shortage of cyber insurance capacity, 12 European companies have formed their mutual insurance, MIRIS, to cover digital risks.

Moreover, it provides a means to encourage insurers to adopt more favorable terms for mature companies that self-insure against frequency risks, only transferring intensity risk, all while optimizing their budgets.