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Managing Geopolitical Risk

Steps to Managing Geopolitical Risk on the Road to Supply Chain Resiliency

In addition to the ongoing effects of the pandemic, geopolitical issues around the world are creating unstable operating environments that can increase costs while lowering supply chain efficiency. Tariffs, sanctions, civil unrest, and military action can disrupt access to suppliers, markets, and shipping channels.

In the face of destabilization caused by events like the war in Ukraine or COVID-related factory closures in China, how can you bulletproof your supply chain to make sure that the products you need are not caught up in political disputes?

Some experts believe we’re currently in a period of re-alignment of manufacturing economics. For example, according to futurist Trond Arne Undheim, the world went too far toward lean, just-in-time supply chains, so now, in today’s political environment, the geopolitics of manufacturing needs to adjust, adapt, and align by putting greater focus on regional networks and innovation.

Thanks to the impact of the pandemic combined with geopolitics, “reshoring, even major reshoring that will be costly and take time to implement, is back on the table” for manufacturers, Undheim said in a recent Forbes article.

The Quest for Strategic Agility

With this sort of manufacturing rebalancing taking place, strategic agility is essential to managing geopolitical supply chain risks. “You should be confident in your organization’s ability to monitor, measure, and manage exposure to geopolitical events,” according to PwC business transformation analyst Matthew Comte.

Business leaders should be aware of their major supply routes, and how existing or emerging geopolitical conflicts could make them vulnerable, Comte explained. To reduce risk, they can consider not only regionalizing their supply chains or reshoring, but also other strategic actions.

To develop strategic agility, Comte recommends that company leaders:

  • Monitor geopolitical trends and events that may impact key suppliers
  • Identify risk exposure by mapping supply chain nodes for suppliers around the world
  • Assess each node’s vulnerability to disruption and the company’s ability to mitigate various types of geopolitical risks
  • Plan to adapt business strategies and operations to changing geopolitical conditions on short notice, such as by securing redundant suppliers or creating an inventory approach that straddles just-in-time and just-in-case strategies

Other steps executives can take to manage geopolitical risks more proactively and strategically include identifying quantitative political risk indicators; assessing the business impact of political risk; integrating political risk into enterprise-wide processes; engaging the board and the C-suite to incorporate political risk into strategic planning; and setting up a cross-functional geostrategic committee, according to a 2021 EY Geostrategy in Practice study conducted in collaboration with the Political Risk Lab at the Wharton School of the University of Pennsylvania.

The Impact of Digital Twins

Leveraging data and technology is yet another way for companies to mitigate geopolitical risks. For example, digital twins are being used by some companies as an emerging artificial intelligence (AI)-powered tool that allows supply chain managers to run “what-if” scenarios.

When political issues arise, digital twins calculate the risks, estimate the impact on a supply chain, and suggest ways to minimize disruptions and slowdowns, according to a recent Workflow article.

From strategy development to data management to technology solutions, Dynamic Technology Solutions provides a broad portfolio of supply chain services designed to anticipate and mitigate internal and external risks. Review our technology supply chain management case studies and learn more about what we can offer your company.

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