Z2Data CEO Insights: The Future of Supply Chain Risk Management

No business will ever view risk the same way they did four years ago. 

Ever since the pandemic, businesses are asking: what does managing risk look like now for the world’s top manufacturers—and what should it look like going forward? 

During the COVID-19 pandemic, supply chain disruptions across the globe forced companies to assess and analyze their supply chains in ways many of them had never done before. 

Commodity managers, procurement professionals, and even executives were suddenly thinking about their suppliers, their suppliers’ suppliers, and all the stages of the manufacturing process with a level of thoughtfulness that was never required before.

While those experiences were not the birth of supply chain risk management, which has been around for decades, they certainly served as a powerful trigger for advancing the field and showcasing its significance to a much larger audience.

People saw how supply chain vulnerabilities, geographical chokepoints, and sudden shortages could cause major disruptions and cost businesses millions in revenue. As a result, they began to treat risk management as a distinct function within their operational structure that warranted time, technology, and resources. 

But now that we’ve emerged from the pandemic, a lot of companies are wondering where risk management fits into their processes today and in the future. 

The truth is that its importance has never been stronger. 

Businesses and their supply chains face a greater variety and magnitude of risk now than at any other time in recent memory. Manufacturers must grapple with growing geopolitical concerns; rapidly expanding compliance regulations; and the array of responsibilities that come with sustainability and ESG initiatives. 

It all adds up to a risk landscape that looks nothing like it did 20, 10, or even 5 years ago, and it requires companies to be agile, proactive, and prescient in the way they think about and mitigate risk if they want to thrive for a long time.

Unlike the bottlenecks, manufacturing shortages, and shipping container crises that the COVID-19 pandemic unleashed, the risk factors that are developing today for manufacturers are not fleeting phenomena. Rather, they represent the new, increasingly solidified realities of the global supply chain, challenges that will evolve and expand in the coming years. Businesses intent on fortifying themselves against major disruptions will have to adapt to these novel complexities. 

There are a number of external forces driving the risk factors companies must navigate today. First, new environmental regulations, an increasing emphasis on human rights issues, and the rapid expansion of government sanctions, restrictions, and export controls are making the global supply chain more complicated. 

Second, known issues such as natural disasters are multiplying. The number of natural disasters that cost $1 billion or more in damages jumped from 8.5 to 20.4 per year over the last five years in the United States alone. 

Third, the demand for electronic components and semiconductors is growing–and rapidly so. More and more items that fill consumers' lives are utilizing electronics, from cars and doorbells to toasters and restaurant menus. The demand for components is becoming more competitive than ever, as new innovators enter the market with digital products. 

Such risk factors, fragilities, and the disruptions that are triggered by them all contribute to the argument for why supply chain risk management matters now more than ever. In the past—including during the pandemic—those businesses that were practicing risk management were approaching it in an informal, even ad-hoc way. 

Commodity managers and procurement professionals worked to know who all their suppliers were. In certain cases, they may have even endeavored to develop some level of familiarity with their subtiers. Supply chain professionals might run risk analyses and put together detailed reports, feeding that information back to management and other key stakeholders. But these were all separate, isolated functions that were generally executed independently of one another, and the measures did not cohere into a coordinated effort, let alone a strategic plan. As we move deeper into the 2020s, though, I believe we’re going to see three things happen that will evolve and mature this relatively simplistic, one-dimensional model, ultimately transforming the way businesses practice supply chain risk management. 

First, there’s going to be a growing need for visibility into supply chains. This is already happening on a modest scale, but it’s poised to increase significantly in the coming years. And as this appetite for visibility grows, professionals are going to start conceptualizing the term in a more comprehensive, all-encompassing way. Instead of just speaking to suppliers and subtiers, visibility is going to start to refer to everything within and around the supply chain, including sites, locations, regulatory status, parts, and the thousands of data points connected to those parts (lifecycle, obsolescence, compliance, etc.). While good risk management entails more than just visibility, being able to map your supply chain and see your entire network of suppliers and components is the bedrock of the field—and industry professionals are going to become more and more cognizant of its critical importance. 

Second, supply chain risk management is going to progress from a discrete, largely disconnected function to something that’s embedded in a company’s internal processes and protocols. And when it becomes an embedded part of a company’s regular, ongoing operations, it’s going to grow more systematic and formalized, with established principles and practices. With this level of institutionalization in place, organizations are going to not only be smarter and more responsive about mitigating disruptions, but also more predictive. The eventual outcome will be businesses able to recognize the full spectrum of their risk factors and predict where potential disruptions are going to come from, effectively wielding a higher level of control and facility over their supply chain. 

Finally, the growing awareness of the advantages conferred by risk management is going to generate a surge in demand for the technology that can help businesses achieve their SCRM objectives. Supply chain tools are the keys to the far-reaching, multidimensional visibility that’s so crucial to effective risk mitigation. In addition, risk management software also provides a deep, powerful repository for actionable data, enabling companies to see which of their components are compliant with trade and environmental regulations, how part obsolescence is affecting their products, and the ways disruptions are impacting their suppliers. 

Beyond those particulars, though, these technology solutions are capable of informing and sustaining a comprehensive, cohesive risk management strategy. When companies utilize all the visibility and data these platforms yield to enhance their supply chain processes and frameworks, they grow into more empowered, proactive organizations. 

I believe that, in the very near future, we’re going to see risk management mature into an integral, foundational part of how companies understand, analyze, and interact with their supply chains. Within the next five years, it will be a fully recognized, business-critical field for many industries, to the point where organizations will one day marvel at how their predecessors ever operated without it. 

At Z2Data, our overarching goal is to give customers comprehensive visibility portfolios that surface risk factors and increase options, access, and flexibility. We want to be at the forefront of this transformation in risk management, helping executives, engineers, and strategic sourcing specialists alike leverage clean, multipurpose data to make better, more strategic decisions for their businesses.