President Trump is Disrupting. Again.

Everybody in logistics needs to pay attention when the President talks about tariffs. 

We are entering into an era of increasing uncertainty, and uncertainty breeds risk.  Are American businesses ready if the trade wars escalate?  On the flip side, are American businesses ready if tariffs shrink or or trade barriers disappear?  Many are not. 

Supply Chain Risk Management (SCRM) is "the implementation of strategies to manage both every day and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity."

Parse that SCRM definition:  manage based on continuous risk assessment, reduce vulnerability, ensure continuity, and, by implication, execute within the operating budget.

Every logistics leader claims to do SCRM, but let’s get real.    Companies may know where their Tier 1 suppliers are, but what about the next level?  Over the past 25 years, the supply chains have become increasingly global.  This means that every business in America is exposed to global risk.

When a supply chain spans the globe, the risk profile for that supply chain shifts.  According to a study by Zurich Insurance several years ago, fully 30% of supply chain disruptions originate at Tier 2 suppliers.  Almost 10% came from a supplier in Tier 3 or even further down the supply chain.

Do you have contingency plans that extend to Tier 2 and Tier 3?  Does your organization know where they are?

Asked to quantify logistics performance, managers will talk about lead times, fill rates, freight costs, and obsolescence.  Yet, if Risk Management is a key element in logistics, SCRM measures should be at the top of the list, too. 

What about time to recover?  Facility risk indices?  Utilities resilience? 

President Trump, by bringing attention to government trade policy and tariffs is doing us a favor.  The potential for a trade war is a warning bell.  Step back and assess.

Then start paying attention to SCRM. 

Tilting at Windmills

According to the New York Times earlier this month, “Google, hoping to head off a rebellion by employees upset that the technology they were working on could be used for lethal purposes, will not renew a contract with the Pentagon for artificial intelligence work when a current deal expires next year.”

Maybe I have too much imagination, but I can also envision using this technology to find lost hikers, locate migratory herds, or find illegal logging or mining operations.

The technology “uses artificial intelligence to interpret video images.”  That kind of technology could have broad application in logistics, too.  Mapping is often pretty important in the context of designing and operating logistics networks.  Presumably, the technology under development at Google could be pretty useful in a broader logistics context.

What’s next for the employees at Google?  Are they going to boycott boot manufacturers because soldiers wear boots?  Are they going to stop driving on interstate highways because they were funded by the federal government to allow rapid movement of military forces?  Are Google employees going to stop using the internet because defense research created it?

A dictionary definition of hypocrisy is “the practice of claiming to have moral standards or beliefs to which one's own behavior does not conform.”

The definition must be accurate; I googled it.

A Holistic View of Supply Chain Risk

Allianz – an international insurance firm headquartered in Europe – publishes an annual “Risk Barometer.” 

According to the report, globally, “Business interruption ranks as the most important global risk for the sixth year in a row (42% of responses), due to its tremendous effect on revenues.”

Drilling down into the Americas specifically, in 2018, the top 10 risks identified in the Americas region are:

1. Cyber Incidents
2. Business Interruption
3. Natural Catastrophes
4. Market Developments
5. Fire and Explosion
6. Changes in Legislation and Regulation
7. Loss of Reputation and Brand Value
8. New Technologies
9. Climate Change and Weather Volatility
10. Talent Shortage

It’s a good list, and Supply Chain Risk Management weaves through all of it.  Logisticians ship, receive, and store things all over the world, so supply chain leaders have to worry about taking a hit in any one of these dimensions.  At the moment, we’re all riding the uncertainty on the domestic regulatory dimension, while chatter about a trade war looms on the horizon. 

The immediate tends to occupy our attention.  That’s natural. The academics call it selection bias.  We focus on what’s in front of us, and have a tougher time thinking about what might be around the corner.

But hurricane season has officially started, unemployment is under 4% so key positions go unfilled, block chain is disrupting traditional business networks, volcanos are being disagreeable in Hawaii, and the FBI is telling us to reboot our servers because of some insidious Russian virus.  And that’s just off the top of my head.  Take a moment and make a list of the “significant” supply chain management risks for your business.

Take a look at your operation through this holistic lens.  Where are your vulnerabilities?  What are your countermeasures?  Do you have a plan?  Are you even capable of executing the plans you have?

Be honest about it, be a little bit intimidated, and then get to work.