Global instability, violent extremism among top 12 risk trends impacting the supply chain
Effectively managing an end-to-end supply chain is a tricky proposition for most retailers.
No matter where a retailer is located or what products they sell, their supply chain likely extends across the globe, exposing them to a wide variety of potential issues. In a new report, “Is Your Luck Running Out? Managing Supply Risk in Uncertain Times,” A.T. Kearney identifies 12 specific risk trends, most negative but some with mixed or even positive impact that will affect the supply chain through 2025.
Here is a brief overview of each trend:
Geopolitical realignment. Geopolitical instability is increasing, with near-term uncertainty concentrated in the Middle East, North Africa, and South Asia. The International Monetary Fund (IMF) predicts that Brazil, Russia, India, Indonesia, and China will be among the 10 largest global economies by 2020. This will put more pressure on resources and escalate overall competition for top-tier suppliers. Retailers that have not implemented strategies to ensure continuity of supply could have difficulties.
Continued global violent extremism. Data from the U.S.-based National Consortium for the Study of Terrorism and Responses to Terrorism shows the number of global terror attacks rose from 2,750 in 2006 to more than 16,000 in 2014. This will tighten the rules and regulations for international banking and shipping routes,, potentially causing longer lead times and potential supply interruption.
U.S. economic resurgence. The U.S. economy is projected to continue to grow at an annual rate of more than 2% through 2020, causing the dollar to appreciate against other major currencies. While this makes U.S. exports less competitive abroad, imported materials and services that go into U.S. products (cost of goods sold) are also less expensive, which improves the competitiveness of supply chains.
The “2020-Seven” growth economies. Seven new emerging markets have the potential to perform strongly in the coming years: Chile, China, Malaysia, Mexico, Peru, Philippines, and Poland. Their emergence will require a change to supply chains.
A new resource slump cycle. Global supply and demand factors have created a 13- to 15-year period of lower commodity prices. While this will boost consumer spending power, it will also create challenges for many resource-exporting countries. Supply chains that rely on these resource-exporting countries could be at risk for supply interruptions from political instability resulting from slower economic growth.
Accelerating global climate change. Extreme weather disrupts business operations and imposes heavy costs. On the other hand, melting ice in the Arctic is opening up new shipping lanes and unlocking access to natural resources. However, geopolitical competition for sovereign rights in the Arctic will complicate the business landscape and create regulatory uncertainty.
Depopulation waves. Based on estimates from the United Nations World Population Prospects, global population growth is decelerating from an annual average of 1.8% in the second half of the 20th century to 1.1 percent from 2000 to 2025. Two major impacts of depopulation on the supply chain are labor shortages and weakening or failing transportation infrastructures.
IT revolution 2.0. Platform economy creators that take advantage of mobile labor pools, such as Airbnb and Uber, will achieve more nimble and cost-effective supply chains. At the same time, these companies become much more susceptible to supplier and partner risks that could disrupt the entire business. New regulations are emerging, including shifting of insurance liability and risk. This is creating more complexity for supply chain managers.
Rise of the machines. Technological sophistication and the growing presence of smart devices, unmanned systems, and robots have the power to “supercharge” supply chains by supporting the use of sensors and machine-to-machine communications. This will allow products and services to move dynamically as market demands change. Access to IoT data should also decrease overall cost and risk in the supply chain.
Evolving artificial intelligence. Advancements in artificial intelligence (AI) are creating opportunities for research and development as well as business use cases. However, it remains to be seen whether AI will displace large numbers of jobs. AI will inevitably decrease overall costs and allow for a more efficient allocation of resources.
Cyber insecurity. With all connected devices and systems vulnerable to attack, estimates put global cybercrime losses at somewhere between $375 billion and $575 billion annually. Implications for global supply chains include the need to manage privacy, secure intellectual property, and protect from revenue loss - all resulting in higher costs.
The changing nature of power. Individuals are now radically empowered by new technology and more readily available information, leading to soaring expectations for services, transparency, and rapid change. Furthermore, the rise of the global middle class is leading to greater individualism and expectations for customized services.