The Unmeasurable Risks in Logistics

What’s the biggest risk facing your business? If you answered inflation, pandemic or war then go to the back of the class, because according to one Forbes contributor: CEOs should really be losing sleep about their failure to adopt a 4 day work week.

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What’s the biggest risk facing your business? If you answered inflation, pandemic or war then go to the back of the class, because according to one Forbes contributor: CEOs should really be losing sleep about their failure to adopt a 4 day work week.

It might seem ridiculous to suggest that cleaving to the traditional five-day working week presents a bigger risk than, say, supply shortages stemming from China’s lengthy lockdowns or the continued chaos of the war in Ukraine. Yet, there is a grain of truth to it. The biggest and most dangerous risks are rarely obvious. They’re the ones you have little idea about, or which you can’t measure including changing employees expectations in different markets around the world.

That’s not to discount the impact of cataclysmic events. Even here, the facts are not always what business leaders might expect, especially if they relied solely on the media for their information. One would quite naturally expect that supplier activity in Ukraine has been decimated by the year-long war. In fact, the data shows Ukrainian suppliers to be incredibly resilient across all supply-related industries, Ukrainian businesses are showing between 2 to 4 per cent higher financial resilience than their global peers.

Identifying and quantifying the multifarious risks facing your supply chain operations sounds like the perfect task for increasingly capable analytics suites. After all, pulling and crunching data from multiple sources and mapping their interactions is exactly what modern analytics does in many other walks of business life. So why is this capability still missing from the supply chain?

Risk analytics is stuck in the Stone Age

While risk analytics vendors make many promises about their technologies’ capabilities, they invariably focus on single risk factors rather than the full range of trends and events that affect businesses’ operations around the world. Not only does this leave organizations bling while making key strategic decisions; it also lulls them into the false sense of security that they have identified all of the risks that matter.

Another reason to distrust these one-dimensional analytics platforms is that they provide absolutely no insight into how these various risks interact with each other. Risks rarely, exist in isolation. Our current bout of high inflation provides the perfect example. When prices rise and the cost of living grows steeper, workers will threaten to go on strike for higher pay or better conditions including a four-day week. Add in a local “weather event” like a typhoon in the South China Sea, and you’ve got the perfect storm and there’s every chance your “bleeding-edge” analytics platform would have missed every risk factor.

For whatever reason, supply chain analytics software remains stuck in the digital Stone Age. In a complex, confusing and fast-changing global trade ecosystem, risks are never solitary. While the war in Ukraine, pandemics and blocked canals hog the headlines, they are only ever individual considerations among a host of other risks, ranging from geopolitical and geolocation factors to extreme weather to the dull yet critically important minutiae of trade deals or changing compliance requirements.

Why doesn’t supply chain risk analysis reflect this complexity?

A holistic approach to risk

Instead of treating each risk as a monolith, businesses need the ability to monitor, analyze and respond to events in every dimension of risk as well as understanding how these risks interact to mitigate or multiply each other. Instead of focusing on individual factors, businesses should be able to take a multidimensional approach to risk, capable of analyzing everything from suppliers financial health to factors such as geolocation, from ESG to sanctions and changing AML regulations.

Geopolitics is a great example of where a multidimensional understanding of risk can help enterprises swerve disaster. Take human rights, a major reputational issue and yet a point of significant difference between jurisdictions. Businesses with complex supply chains may not understand that international agreements and evolving local regulations leaves them unwittingly exposed to reputation-shredding links to abuses like modern slavery.

History shows how damaging this can be. Two decades ago, Nike was embroiled in a workers’ rights scandal at its Indonesian factories. The share price crashed by 15%, while arch-rivals Reebok significantly increased market share. That scandal was in Nike’s directly managed operation. In today’s massively more complex supply chain, how can a business identify risks across its suppliers and its suppliers’ suppliers, all the way to the source?

One UK-based fast fashion firm managed to do exactly that. We won’t name them because the story revolves around reputational Kryptonite: child labour. The company deployed a multidimensional risk analytics platform, which flagged that one of its Bangladeshi suppliers was using child labour in sweatshop conditions something highly illegal under UK law, though compliant with local regulations.

The supplier may not have been breaking local laws, yet they were exposing the buyer to enormous reputational risk and certain consumer backlash. Contrast this with another global e-retailer that was revealed by The New York Times to be exposed to slave labor in its own supply chain something that no one in the company was aware of until the story broke.

Taking a multidimensional approach to risk may seem like good business sense and it is, but the benefits go far beyond safeguarding the reputation of individual businesses. If it’s applied across every business, then it has the potential to bring much-needed resilience to the global trading ecosystem.

Building the world’s risk information system

If the Black Swan events of the last few years have taught us anything, it’s that risk can appear from anywhere. That’s why the ultimate goal of multi-dimensional risk analysis is to build a “single market” for risk, where every company feeds verified data into a universal platform where anyone can tap into the insight that emerges. Today, any business has the power to protect their reputation, strengthen their relationships and enhance the resilience of their supply chains simply by understanding the risks they never knew they faced.