In today’s dynamic climate, a supply chain can be subject to various risks, whether geopolitical conflicts, inflationary pressures or climate change1. They can all impact the flow of goods, cause port closures, reduce regularity and availability of ocean freight and significantly increase costs across the supply chain.
Navigating geopolitical risks is most uncertain and is crucial for businesses to understand and be aware of when operating in today’s complex global environment.
Understanding Geopolitical Risks
Geopolitical risks encompass factors like political instability, trade disputes, and regional conflicts, such as the Red-Sea Crisis or the Israel-Hamas War.
Specific risks include:
- Shipping times: traditionally, shipping times range from 10 to 14 days. However, due to geopolitical shifts, routes are forced to change, leading to longer transit times (up to 4 weeks).2
- Increased ocean shipping rates: ocean shipping rates fluctuate, causing shifts in a company's bottom line.
- Ripple effects: disruptions in one region can reverberate through interconnected supply chains.
- Supply shortages: geopolitical events may disrupt access to critical components, requiring alternative supply to be sourced.
Scenario Modeling
To navigate these risks, employing simulation modelling or advanced technology like Generative AI should be considered, to simulate different scenarios and assess the potential impact on a supply chain. Through the powerful technology combination of simulation and the TMX Metaverse, businesses are offered a potent technology solution, gearing them with the appropriate tools to manage potential risks.
By visualizing and understanding the possible challenges your supply chain could face, a Business Continuity Plan can be developed and applied in the event the risks come to fruition3. Business continuity planning allows uncertainties to be mitigated through:
Risk assessment: Identify vulnerabilities and prioritize risks.
- Supplier diversification: Work with multiple suppliers to reduce dependency (when disruptions arise)
- Inventory management: Maintain buffer stock for critical items.
- Communication: Establish clear communication channels with partners during crises – have a clear plan and ensure all necessary parties are aware of course of action.
Strategic Agility
Due to the volatility of geopolitical events, companies should be agile enough to adapt quickly, whilst monitoring the unfolding of events and where your supply chain could be interrupted.
By staying informed, modeling scenarios, and having contingency plans, businesses can better protect their supply chains in an ever-changing geopolitical landscape.