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Three Supply Chain Risk Management Lessons You Can Learn from the Suez Canal Block

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Archives, Global Logistics, Global Trade Daily, Ocean Carriers

Three Supply Chain Risk Management Lessons You Can Learn from the Suez Canal Block

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The Ever Given vessel is floating, but the ship is not out of hot water. In fact, Egyptian authorities said it will remain in the Suez Canal until they are compensated by the vessel owners for the damage, labor, and disruption caused. Although the cargo on the Ever Given is still at a standstill, other ships have been able to freely move through the canal over the past few weeks.

Even still, the effects of the Suez Canal block will continue to ripple far beyond the cargo that remains stuck on the Ever Given. The influx of delayed cargo has disrupted offloading schedules at ports, delivery schedules for shipping companies, and even orders sent directly to consumers. As an industry, it’s imperative for us to learn from this and develop strategies to minimize the impact of similar blockages should they happen in the future.

Now that we can view the incident in hindsight, I wanted to share three risk management lessons you can take away from this to create a healthier supply chain.

1. The entire supply chain can be impacted by one accident

Although the Suez Canal handles only 13% of global trade, its blockage rippled through the supply chain worldwide. The BBC reported that 369 ships were stuck waiting for the Ever Given to be refloated. Not only did all those ships have significantly delayed cargo, but the disruption created a backlog of cargo that continues to be felt today at ports, warehouses, shipyards, retail locations, and ultimately, by customers.

For an example of the negative effects this sort of delay can have, let’s look at perishable deliveries. Perishables are on tight delivery schedules that ensure the product arrives at its destination fresh and ready for purchase. Adding a week to the delivery timeframe for perishables can kill the entire supply chain. Even if the goods are still delivered in acceptable condition, they will not be able to spend as much time on shelves, resulting in a massive amount of food waste and lost profit.

The Suez Canal block has also affected supply chains through the ships that were rerouted from the canal. These ships will arrive later than expected and have a higher potential for damaged cargo as they spent more time navigating through rough seas. This may delay shipments, cause inventory shortages, and create logistical difficulties at various offloading points.

We have yet to even see the full range of effects that this mishap will have on the global supply chain, but it has proven that any incident in the supply chain ripples out to points all across the globe.

2. Flexibility is key

Congestion and disruption can always get worse. Because shippers and even logistics experts can’t always predict exactly what will happen, it’s important to have a plan for every eventuality. Planning ensures that you remain flexible and meet your goals, regardless of the obstacles faced along the way.

To remain properly flexible, you need to have a broad range of options on hand. For example, at C.H. Robinson, we assist our clients through our suite of global services. We use a diverse array of services to ensure that our clients are supported, no matter the situation. For instance, when approaching ocean shipping, we leverage full container load (FCL) and consolidation less than container load (LCL) ocean services to create a diversity of options for our customers. Not only does this allow them to choose the option they desire, it also provides them with alternatives should anything unexpected occur.

Additionally, using the insights gained from logistics technology, in particular from supply chain connectivity technology, can help you see what a supply chain error or delay will affect, making it easier to get ahead of the effects before they derail your operation.

Ultimately, this is all in pursuit of resiliency. Because there are so many moving parts in the global supply chain, it’s unreasonable to expect that each part will always be in sync. An excellent logistics plan with an excellent logistics partner combine to ensure resiliency against even the most unexpected events.

3. A risk management strategy is no longer a luxury

Since the global supply chain has grown so large and so complex in the 21st century, risk management strategies have become a necessity. In most cases, customers expect that they are a given. In the case of the Suez Canal incident, none of the ships stuck behind the Ever Given ever expected that the Suez Canal would be blocked, and no one on the Ever Given expected to become lodged in one of the world’s most vital trade passages. Regardless of expectations, these accidents occurred, and everyone was scrambling to mitigate the risk.

Because no one can predict such incidents, it’s vital to have risk management strategies in place well before any issues occur. Even before the Suez Canal blockage, the importance of risk management for ocean shipping had been increasing. In February, we touched on the increase in vessel accidents over the past year. In that article, we discussed how to prepare for a vessel accident, and many of the same lessons that we imparted there apply to this situation.

Specifically, the two most important pieces of advice that carry over are purchasing maritime insurance and working with a provider with a global suite of services. We’ve already discussed the importance of working with a reputable, well-connected provider, but it bears repeating that a provider with a global suite of services can correct issues faster and more effectively than you could on your own.

Maritime insurance is something that we highly recommend purchasing whenever you engage in ocean shipping. Imagine how you might feel if you were carrying a large amount of produce that rotted while you were stuck in the Suez Canal. Even worse, imagine you were the managing company of the Ever Given, now being asked to pay up to $1 billion by the government of Egypt for the affair. If you found yourself in this situation and did not have maritime insurance, your company could quickly find itself sunk by a combination of lost revenue and damages. Even on a smaller scale, if you were shipping cargo through rough seas and a single container were lost or damaged, having insurance would save you from stressful financial headaches.

Spare yourself trouble by staying prepared

Issues like the block in the Suez Canal have a lot to teach shippers and logistics experts about the interconnected nature of global supply chains. To provide the highest possible level of service to your customers, consider the plans that you have in place for when something goes wrong in the supply chain.

Ready to protect yourself against supply chain disruptions? Connect with our global network of experts to see how C.H. Robinson can provide solutions for your business.

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Archives, Global Logistics, Global Trade Daily

The Four Levels of Supply Chain Risk

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Supply chain risk comes in many forms – from industry-crashing crises to supplier challenges. To manage it effectively, you need to assess it at every level.

Supply risk can take many forms and can manifest anywhere in the supply chain process. So, to be effective, supply risk management must be built around a framework that evaluates and assesses risk at every level – from overall risk exposure across the value chain, right down to the individual supplier level.

A holistic approach to supply risk management is built around four different levels of supply risk. Here is a look at how those levels break down, and how building your own risk management framework around them can help you develop a holistic view of risk across your supply chain.

Level 1: Value Chain Risk

A common pitfall in supply risk management is assessing risk at an individual supplier level first, then working your way up to developing a holistic risk view. But, in practice, assessments should always start at the value chain level.

By starting with a broad, comprehensive evaluation that considers the full stream of activities required to supply or ‘develop’ a commodity or category, you can establish a deep understanding of the factors, drivers, and variables that can influence it.

Assessing the value chain at this level enables you to look beyond simple economic factors, and encompass a huge range of additional quantitative variables, such as political, social, and regulatory factors.

We start at this level because it enables us to better understand the context and potential impacts of each variable and factor. By looking across the value chain, we can more clearly identify the knock-on impacts of each driver, and truly understand the threat they pose to operations.

That’s not just valuable for shaping your overall risk management strategy – it’s hugely valuable information that will help you better identify and prioritize high-impact risk factors as you work your way down to supplier-level assessment.

Level 2: Category risk

The next logical analysis level is category risk – which is to recognize the inherent factors that influence risk for a specific category. Practically, this requires a deep understanding of both the economic model that underpins a particular category and the specific influencers of those economics.

Here, the starting point is to construct a thorough Should-Cost Model for your category. A strong cost model provides deep insight into what makes up the economics of a product or service – at a line-item level – and provides insights into the key drivers of category economics.

But building that model is just the beginning. What you do with the model – what you learn from it – is where the real value is. By conducting a thorough trends and dynamics analysis, you can build up an understanding of the dynamics that can influence the cost levers that make up your model. Then, you can start identifying which changes and trends are worth looking at, and why.

Level 3: Supply base risk

With the value chain and category analyses as the foundation, attention must now turn to assess risk across the supply base. Critically, this isn’t a one-off exercise – it’s a continuous process, where organizations constantly evaluate and re-evaluate their supply base.

This is where supply risk management gets challenging – and technical. Many organizations have hundreds of suppliers to manage and keep track of, each with a unique risk profile. To build a complete, up-to-date view of risk across them, your team will need some help.

Fortunately, AI and the development of new consumerized dashboards are now making continuous assessment a practical reality, even for companies with extremely large supply bases.

These executive-friendly dashboards are tremendously valuable – but only if they include both financial and non-financial business variables. They should largely be automated, but also enable human input and intelligence, providing a holistic ‘health screening’ that flags key variables and changes across the supply base.

Level 4: Individual supplier risk

Another big advantage of using AI and dashboards to automatically assess risk across your supplier base is that it can help surface the individual suppliers that most need deep individual analysis, so that the right strategic decisions can be made about them.

Historically, supplier risk assessment entailed a cursory credit check, some sort of basic financial evaluation, or an outreach to the suppliers themselves for more information. Today, however, there is a far wider toolset available to procurement executives, enabling them to consider both the quantitative and qualitative factors that make up financial sustainability and business viability.

To understand those factors, teams must ask a demanding set of questions; How does this supplier relate to its competition? How much cash is on hand? What are their key ratios? What are their debt risks? How has the company developed year-on-year? Are there any external factors that will impact the company’s financials?

In other words, not only financials, but also business, operational, and competitive assessments must be factored into the discussion. This kind of holistic assessment is essential at the individual supplier level. Of course, this will not be needed for all suppliers, but it will be needed for the most strategic (or the most problematic).

Take a comprehensive look at supply chain risk

Want to learn more about the four levels of supply chain risk, and discover what it takes to build and execute a robust, future-ready risk strategy in today’s increasingly vulnerable and crisis-prone supply environment?

Get your copy of Risk & Your Supply Chain: Preparing for the Next Global Crisis and explore expert insights from The Smart Cube’s Omer Abdullah and Subash Chandar, designed to help you build a more resilient supply chain and prepare for whatever tomorrow may bring.

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Archives, Global Logistics, Global Trade Daily, Stories

Global Trade and Logistics: Adapting to Constantly Evolving Needs

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Global trade managers have to deal with the complexities of multiple languages, time zones, currencies, taxes, and modes of transport. There are several laws governing global trade, and these are highly complex and ever-changing. So how do organizations manage these complexities and how can you get a competitive edge?

Current scenario

The complexity in global trade management exposes you to a lot of risks. While companies want to make the most profitable trades, it is important to balance counterparty and credit risk. Organizations must review and act on large volumes of regulatory information, which is often published on paper in varying formats and maintained in spreadsheets throughout the organization. Visibility into the entire trading value chain provides the key to making smarter, more profitable decisions. Raw materials and commodity businesses need accuracy int three key areas:

1. Flow of Information

Companies need a complete view of budgeted and actual trade-related P&L across contracts, shipments, invoices, and payments. They need to ensure documents are accurate and comply with business agreements and have a clear appraisal of all order edits, shipment changes, and related documentation.

2. Flow of goods

Companies need to track shipment and order related activities, manage all information related to the movement of the physical goods, and implement credit checks of all counterparties during contract negotiations, shipment, and invoicing.

3. Flow of cash

Good cash flow management is essential to profitable trading. Companies must diligently record the flow of letters of credit from creation to final presentment and record and track loans. They must manage resolution flows among multiple trading partners.

A Comprehensive and Modern Solution

Traditionally, global trading organizations spend most of their time and resources manually screening shipments and updating them. The solution should ensure that the process is automated, enabling organizations to screen their shipments more often, more efficiently, and more accurately, ensuring the actual shipment status is reported to the required parties.

In addition, companies should be able to track and trace shipments from origin to destination and boost operational efficiencies. They are aware of delays and deviations and can overcome shipment delays. By comparing costs and charges, companies can determine the best voyage strategies.

These challenges are difficult to master without a comprehensive solution that is simple but has the capability to manage numerous complex global trade activities and is designed to save time and effort, enabling companies to focus on core work. A modern solution that would streamline the entire lifecycle of the supply chain – automating manual processes would help reduce the cost, time, and risks in quantifiable and auditable ways.

Eka Software Solutions is a global leader in providing digital commodity management solutions driven by Cloud, Blockchain, Machine Learning and Analytics.

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Archives, Global Trade Daily, In The News, News, Special Reports

KÖRBER: ONLY 1 IN 10 BUSINESSES CAN STAY AHEAD OF THEIR SUPPLY CHAIN CHALLENGES

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Körber, the Hamburg, Germany, global supply chain technology leader from software to materials handling automation, on Sept. 1 announced the results of its “2020 State of Supply Chain Complexity” survey.

Among the top findings: Manufacturing and fulfillment complexities only continue to grow–and 91 percent of supply-chain professionals cannot stay ahead of these challenges.

More products, distribution channels, and customer expectations make supply chains more complex, according to Körber, which polled 1,200 global supply chain professionals to learn how they cope with supply chain complexity, how they feel their solutions stack up against the competition and how they’re managing the transition from manual to automated processes.

Technology integration and customer demand ranked among the top challenges today’s supply chain faces.

The issues respondents said most often contribute to their company’s supply chain complexity include:

-48% ‒ integrating and ensuring software, materials handling equipment (MHE), and technologies work together throughout the entire logistics ecosystem

-46% ‒ integrating functions across the supply chain – from manufacturing to end-customer deliveries

-46% ‒ meeting consumer expectations for speed, cost and adaptability

Nearly three-quarters of survey respondents said senior executives view the supply chain as mission-critical–an important step in gaining support for upgrading warehouses and last-mile technology.

“Now isn’t the time for supply chains to break under pressure–yet, 48 percent of companies have experienced growth in complexity this past year,” said Rene Hermes, chief marketing officer for Körber Supply Chain. “It’s good to hear so many executives see this business area as mission-critical. Now we must transform that understanding into action.”

Access the 2020 State of Supply Chain Complexity Survey here: https://www.koerber-supplychain.com/complexitysurvey.

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Archives, Global Logistics, Global Trade Daily, International Trade, Software

Why COVID-19 is a Galvanizing Moment for Eliminating Physical and Digital Supply Chain Risk

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When the COVID-19 pandemic began, the resulting economic fallout was felt across borders and industries alike. From manufacturing to financial services, every industry has been scrambling to minimize the impact of the pandemic on the bottom line. For many businesses, this has helped serve as an urgent wake-up call to take proactive steps to identify and eliminate risk across their global supply chains, which typically span several tiers of suppliers dispersed across the world. Real-time supply chain risk visibility plays a critical role in avoiding business disruptions.

The Economic Risk

There is an immense economic risk that needs to be considered when a business operates a global supply chain. At the start of the pandemic, we witnessed the inevitable ripple effects across not just multiple industries but also across multiple different tiers of suppliers. For example, 3.74% of sub-tier suppliers in the Department of Defense’s ecosystem closed as a result of the pandemic. 75% of small businesses have reported that they have only enough cash in hand for 2 months or less. As suppliers struggle or go out of business, significant supply chain disruptions are common.

This instability coupled with the multitude of other economic crises facing the world, such as ongoing trade friction with China, could precipitate a fundamental collapse of global business as we know it. We must monitor our supply chains for more points of exposure to risks than ever before.

The Data Security Risk

With computer hacking having increased 330% since the start of the pandemic, global businesses also need to account for the cybersecurity risks involved with having a supply chain across multiple countries and potentially hundreds or thousands of suppliers. The data systems of global suppliers are a potential entry point to a brand’s or government agency’s data systems, presenting a major challenge across the global supply chain. Organizations must be able to assess and continuously monitor the strength of supplier data security measures and the changing cybersecurity-related risk associated with their suppliers.

Even after the pandemic subsides, the need for real-time risk monitoring in the extended digital supply chain will persist, especially as cybersecurity attacks grow in sophistication.

New Technology for Physical and Digital Supply Chain Risk Management

When it comes to monitoring risk associated with multiple tiers of suppliers, the majority of businesses are still way behind. According to Gartner, only 27% of companies perform ongoing third-party monitoring and only 2% directly monitor their 4th and 5th party suppliers. Although companies know they’re vulnerable to disruption by a sub-tier supplier, not enough are being directed or given the tools to actively monitor them effectively.

Historically, the majority of businesses attempt to identify, assess and manage supply chain risk manually and only periodically. This is because, previously, automation technology focused on making sense of large amounts of extended supply chain ecosystem data has not been up to the task. Much has changed. The global machine learning market was valued at just $1.58B in 2017 and is now expected to reach $20.83B in 2024, growing at a CAGR of 44.06%. New AI and machine learning-based technology is emerging rapidly and changing the game. This new technology can immediately illuminate risks across all tiers of a global supply chain because data on tens of millions of suppliers is continuously monitored from both a physical and digital supply chain perspective and across numerous risk factors.

Incorporating AI-powered solutions into your supply chain risk management strategy can automate the identification of risks that exist deep within a supply chain. In addition, adopting this technology ensures that an organization has continuous, real-time information to inform ongoing risk management efforts and identify problems before they threaten the business.

There is no way to know when the pandemic and its resulting implications will cease. Or when and where the next global event will happen. Looking ahead, successful businesses will be ready to continue functioning in a safe and secure way regardless of what issues they face. Supply chain-related blind spots and resulting disruptions can pose major complications for organizations that aren’t able to effectively identify and map risk. COVID-19 has driven a greater sense of urgency to shore up these problems. New technology for automated, continuous monitoring of supply chains end-to-end presents a new path toward operational resilience, business continuity, and overall health.

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Jennifer Bisceglie is the CEO of Interos, the first and only business relationship intelligence platform to protect enterprise ecosystems from financial, operations, governance, geographic, and cyber risk in every tier of enterprise supply chains, continuously.