Which Supply Chain Risks Will Increase in 2019?

Every year, prior to the big event in Davos Switzerland where movers and shakers from around the world get together, the World Economic Forum produces a Global Risks Report. The report includes a survey of around one thousand members of their “multistakeholder communities.” The results reported are worth the attention of executives that participate in programs to assess and manage supply chain risks.

Supply Chain Risks

The top 5 global risks in terms of likelihood are:

  • Extreme weather conditions
  • Failure of climate-change mitigation and adaptation
  • Natural disasters
  • Data fraud or theft
  • Cyber-attacks

The top 5 risks in terms of impact include:

  • Weapons of mass destruction
  • Failure of climate-change mitigation and adaptation
  • Extreme weather events
  • Water crises
  • Natural disasters

Global risks were defined as uncertain events that if they occurred, could cause significant negative impact within the next ten years.

Environmental risks dominate the list for the third year in a row. Environmental risks account for three of the top five risks by likelihood and four of the top five by impact.

In terms of short-term supply chain risks, a list of risks expected to increase in 2019 was published. Many of the risks mentioned will require changing national attitudes, new laws, or better multilateral cooperation. Those risks are not listed below. Only the risks a supply chain risks an operations team could create contingency plans for are listed.

Percentage of Respondents Expecting Risks to Increase in 2019:

Economic confrontations/frictions between major powers           91%

Erosion of multilateral trading rules and agreements                   90%

Political confrontations/frictions between major powers              85%

Cyber-attacks: Theft of data or money                                          82%

Cyber-attacks: disruption of operations and infrastructure           80%

Personal identity theft                                                                    64%

Loss of privacy (to companies)                                                       63%

Regional conflicts drawing in major powers                                  62%

Destruction of natural ecosystems                                                 62%

Protectionism against foreign workers                                          62%

Water crisis                                                                                     58%

Protectionism regarding trade and investment                             54%

Air pollution                                                                                   52%

Weak economic growth                                                                 51%

Authoritarian leadership                                                                51%

Concentration of corporate power                                                51%

High levels of crisis-driven or economic migration                       50%

Debt defaults (public or private)                                                    48%

State-on-state military conflict or incursion                                  44%

Erosion of constitutional and civil society checks on gov’t            44%

Civil unrest (including strikes and riots)                                         44%

Bubbles in stock or other asset prices                                           40%

Currency crisis                                                                                35%

Deep or corrupt ties between business and government              35%

Violent crime                                                                                  30%

Terrorist attacks                                                                              20%

It is a sobering list. What companies can do about supply chain risks depends upon the type of risk. Risk mitigation can include changing where factories and other facilities are located, which ports goods and raw materials flow through, where companies choose to invest in growth, hardening IT systems, and many other things.

Companies also need to know more than just that a certain type of risk has increased, they also need to know where that risk is likely to occur.

Risks can be interconnected, mitigating against one type of risk can also mitigate against similar risks. But sometimes choosing to mitigate one risk can increase a different type of risk. In short, risk trade-offs need to be considered. Finally, not all risks can or should be mitigated.

Still, as companies go through their annual strategic planning process, and update their supply chain risks strategies, this report can be a good brainstorming tool. I just wish the report came out in October or November, when most companies are going through strategic planning, rather than in January, when the process is done for the year.

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