Stay Ahead of Geopolitical Supply Chain Risks

A practical framework for mitigating the disruptive effects of international conflicts can help companies protect their supply chains.

- By Morris A. Cohen, Shiliang Cui, Vinayak Deshpande, Ricardo Ernst, Arnd Huchzermeier, Daniela Muhaj, David Pyke, and Andy A. Tsay

THE CONVENTIONAL PLAYBOOK FOR managing supply chain risk — designed for natural disasters, supplier failures, and short-term market volatility — is falling short in the face of persistent, politically motivated disruptions such as trade wars, sanctions, and armed conflict. As the maneuverings of national leaders threaten supply chains, global companies are struggling to mount effective responses.

At the heart of the challenge are high levels of both complexity and uncertainty. Longstanding U.S. trade policies have been disrupted and become more unpredictable; acts of war or terrorism can upend executives’ assumptions about security risk overnight. The scale and complexity of companies’ supply chains make it challenging to predict the impact of such events across their networks. Against this backdrop, it’s critical that companies make a more systematic effort to understand, monitor, and manage geopolitical risks.

Companies may approach the same risks in different ways. There is no single solution or guaranteed outcome. But the businesses we studied have one practice in common: They have — or strive to have — end-to-end visibility into their supply chains. They prioritize understanding the contributions of and the risks to their suppliers and customers at every level. While they may have an incomplete picture, given the challenges of obtaining information from suppliers outside of the top tier, they do their best to stay well informed, create new options to enable flexibility, and then make the necessary adaptations to their procurement networks as needed. (See “The Three Pillars of Supply Chain Risk Management, “ p. 69.)