Rather than adding band-aid solutions to outdated systems, the best businesses are looking to get out in front of risk. They are embracing smart, cloud-based supply chain management tools that can seamlessly integrate their supply chains with their customers and their entire business and operational ecosystems.

10 of the top supply chain risks

At any boardroom in the world, you can hear business leaders discussing the biggest risks they face within their supply chain operations—and what they should do to mitigate those challenges. Below is a list of 10 of the leading supply chain risks that are being talked about today:

1. Global political unrest

The past few years have seen a rise in complex geopolitical challenges which, unsurprisingly, can lead to worldwide shortages in energy and raw materials that have an impact on supply chain production planning and logistics. In fact, in the SAP 2022 Supply Chain Survey, geopolitical unrest was the top supply chain issue according to business leaders (58%) followed by lack of raw materials (44%).

Fortunately, there are ways businesses can help keep their production lines and supply chains moving, even in a volatile or unpredictable global climate. One strategy—as outlined by PWC analysts—is to map out, monitor, and measure your exposure to geopolitical events across all supply chain links and access points, to allow for faster responses to events as they arise. For example, building a more diverse network of suppliers and establishing live connectivity with your logistics partners can allow you to pivot on the fly in the face of disruption.

However, these agile planning strategies require cloud-based software solutions that deliver visibility, live connectivity, and the capacity for advanced data analytics. The best solutions incorporate technologies like AI, machine learning, and IoT that add automation and intelligence. Additionally, cloud solutions allow for running what-if scenarios and predictive analytics, receiving global news and disruption alerts in real time, and getting better insights into the entire supply chain. They also support centralized end-to-end visibility and responsiveness so that disruptions and upsets in one place don’t have to lead to delays in another.

2. Economy and inflation

Many businesses are feeling the pinch as fears of recession, inflation, and poor economic conditions mean higher costs – of fuel, energy, labor, and doing business in general.

To thrive in times of economic upheaval, supply chains need to be both visible and responsive. And as the latest Gartner research indicates, the best supply chain leaders are looking to smart, cloud-based supply chain solutions to help them beat the crunch. These solutions deliver the tools you need such as real-time cross-business data analytics and forecasting which can help to give you a competitive edge.

Smart digital solutions also deliver powerful planning and predictive tools such as digital twin technology that allows you to virtually recreate your supply chain, simulating response and performance across different inflation-related scenarios. Andy Hancock, SAP global vice president of the Digital Supply Chain Center of Excellence, adds to this saying: “We’re also going to see digital process twins, which means modeling a supply chain to get a complete understanding of the different moving parts to gain visibility.”

And of course, in times of inflation, you also face the risk of sudden pricing spikes or materials shortages. When R&D and design teams are integrated into your supply chain and manufacturing ecosystems, you can pre-emptively develop alternate product designs that allow for cases where materials components may have become scarce or unaffordable.

To achieve this level of visibility and seamless continuity, modern businesses are turning to planning software that supplies a network view of the entire supply chain as well as real-time analytics and alerts to help them anticipate and stay ahead of inflation-fueled disruptions. SAP Integrated Business Planning (IBP) solution for supply chains, supports the simulation and comparison of different supply planning scenarios to power faster and more collaborative decisions.

3. Climate-driven disruptions

From flooding to heatwaves and wildfires, extreme weather events have been happening with alarming and growing frequency over the past several years, taking a massive toll on supply chains in the process.

With better visibility into the supply chain—from the locations of supplier production sites to transport routes—businesses can anticipate and minimize disruptions caused by these natural disasters. Logistics and transportation management solutions that can support multiple modes of transport and collaboration with global business partners mean faster execution of alternate logistics plans as the need arises. Mapping and monitoring factories throughout the supply chain and diversifying the supplier base is another useful strategy. In addition to being able to respond to the growing frequency of extreme weather events, you’ll also want the ability to roll out green energy and other sustainability initiatives to mitigate the long-term impact of warming temperatures and comply with environmental regulations.

Of course, these ambitious goals require powerful solutions that not only keep up but integrate with your existing business systems and processes. An integrated IBP solution features supply chain analytics, what-if simulations, alerts, and more to help you stay ahead of unexpected climate events and improve sustainability and overall efficiency.

And when it comes to the bottom line, it’s crucial that your supply chain sustainability initiatives are trackable and represent good value. A cloud-based manufacturing execution system (MES) is designed to provide a link between production and business in supply chain management, providing global visibility across all operations by connecting top floor business systems to shop floor equipment—ensuring productivity and efficiency.

4. Non-compliance with ESG and related mandates

In response to global climate concerns, we’ve also seen growing complexity in environmental, social, and governance (ESG) regulations. And while the best companies are ethically motivated to meet these targets, they are also motivated by the enormous risks and loss if they don’t comply. Such risks include fines, sanctions, and financial loss that threaten any business. Furthermore, non-compliance can result in knock-on operational disruptions including seized inventory, recalls, and reputational damage.

To mitigate these challenges, you need powerful tools to track and report on your activities and partnerships, improving visibility and transparency across your extended supply chain. Sustainability solutions that integrate actual ESG data can also help. Modern product footprint management solutions make it easier for you to calculate your carbon footprint for products and across your entire value chain. This includes real-time updates of regulations as and when they change, and the expedited ability to report your progress as required.

5. Cyber threats

While the benefits of cloud-connected supply chains are evident, there is also an increased risk associated with the rise in IoT networks and connected devices and assets. Such systems can provide additional portals for would-be cybercriminals, so it’s wise to choose software solutions with powerful built-in cybersecurity features to combat these risks.

Greater streamlining and collaboration around network security, devices, and programs can help you catch and mitigate these threats. So too can extra investments in employee security training according to a 2023 report by the Association for Supply Chain Management (ASCM). Supplier risks come into play here as well, with more than 80% of a company’s cyber incidents resulting from compromised suppliers according to a recent Forbes article.

For years, companies have been relying on outdated ERP and supply chain management systems—bolting on applications and solutions until they have a mess of code spaghetti and vulnerable access points. Today, you’ll want to build your cross-business and supply chain management systems on a powerful, cloud-based ERP system with a scalable in-memory database. Such solutions let you automate your security needs in real time, and confidently integrate all your cross-business applications into a secure, unified platform.

6. Product, and raw materials shortages

To help offset shortages caused by volatile supply, nearly two in three companies (64%) are storing more inventory “just in case” according to a recent SAP survey. However, other companies like ZF Friedrichshafen AG are moving to a more holistic demand planning approach, which allowed the company “to improve availabilities and reduce inventories” within its multi-echelon supply chain—and live up to its role as a reliable provider of innovative technologies for the automotive industry.

When faced with threatened supplies of both raw materials and finished goods, businesses need to develop strong organizational practices to anticipate shortages and prepare contingency plans. They must also leverage powerful software solutions with integrated features that can help them master supply planning, inventory management, and demand planning.

7. Logistics risks

The past few years have seen many newsworthy shipping problems including ocean freight bottlenecks, maritime strikes, and widespread port closures. One of the most notable disruptions involved one of the world’s largest container ships blocking the Suez Canal for over a week and wreaking havoc on the global supply chain.

To minimize supply chain disruptions, you must adapt your transport modes dynamically, leveraging real-time information. Automated freight management and shipping processes, cloud collaboration, and standardized freight documentation can also help you offset these risks.

Other logistics risks have surfaced as the result of pressure to speed up delivery times and compete with the Amazons of the world. For example, the use of micro-fulfillment centers that feature the most popular SKUs in a small, centrally located center carries its unique risks. These include more complex fulfillment, the need for more frequent replenishment with more "less than truckload" (LTL) and truckload shipment capacity, higher start-up and remote labor costs, and uncertainty over the longevity of this model. There are similar risks when using a multiple distribution center model.

Fortunately, the best supply chain logistics software today delivers sophisticated, AI-driven planning features that help you manage your logistics operations more visibly and efficiently—from warehousing to complex fulfillment, distribution, and sophisticated last-mile delivery operations.

8. Demand volatility

Product lifecycles are shorter than ever before. All it takes is an Instagram of a new product or trend, and consumers expect to be able to buy that item right then and there. To meet increasingly short and complex product lifecycles, businesses must integrate their operations in new and responsive ways. The first step is to capture trends data from customers and media. Those new product and service demands must then be communicated to R&D and design teams tasked with the rapid development of new products and product tweaks that meet those demands, but also follow efficient and sustainable practices. Then marketing, sales, and other operational teams need to be on board, to create interest and awareness of new products, and to ensure that all the pricing, admin, and retail components are being managed efficiently as well.

To help you coordinate and integrate these interdependent tasks, you can now turn to supply chain planning software solutions that use machine learning technology and automated statistical forecasting for advanced demand planning and demand sensing. Multilevel planning across your entire supply chain network, rough-cut capacity planning that considers material constraints, and automatically prioritized response management can also help you to smooth out demand volatility. And when those planning solutions are integrated with your sales and operational planning (S&OP) teams and tasks, you can serve (and delight) your customers with fast and accurate responses to their wishes and expectations.

9. Lack of transparency

Supply chain visibility and supply chain transparency are two different things. Good visibility is an internal benefit and means that you have a real-time, end-to-end view of your operations from a unified platform. Whereas transparency refers to an outside-in view of your company and your ability or willingness to expose your practices. For example: the provenance of your products and raw materials and the ethical standards of your sourcing and labor practices. And this is where visibility and transparency come back together in a supply chain, because without end-to-end visibility, full transparency is nearly impossible.

Thankfully, advances in managing Big Data, artificial intelligence, and tracing technologies like RFID sensors and blockchain allow for levels of transparency that would have been previously unheard of. For example, AI can be used to track the status and location of packages. With blockchain technology, the origin of a product (and its component raw materials) is stored in an irrefutable record that can be updated with new information as it moves throughout the supply chain. RFID sensors can be fitted to products and materials, and sensor mandates for your partners and suppliers can shine a light into previously dark areas in the supply chain. And geolocation tracking and rule-based predictive alerts can also help you to mitigate these risks.

10. Business information risks

The data and information you need to drive seamless supply chain and manufacturing operations can come from many sources including IoT networks, product developers, customers, logistics partners, or even other operational areas like HR or Sales. And it’s absolutely essential that this data is consistent and reliable. Cloud-based, AI-powered digital manufacturing solutions help to ensure that all that valuable data is integrated and standardized to deliver the real-time, dependable intel you need to make informed decisions and respond quickly to risk.

Supply chain risk mitigation strategies

The types of risks businesses are facing are evolving, but so are smart digital technologies that help businesses hone their strategies for managing supply chain risks. Here’s a recap of some of the risk detection, assessment, planning, and execution methods that can help.

• Gain better and extended visibility into your value chain and suppliers through cloud software that provides analytics and KPIs for monitoring global and plant-level performance—as well as machine learning that can perform root-cause analysis.
• Monitor the supply chain in real time with technologies like AI, machine learning, advanced analytics, and the IoT for better visibility and real-time alerts that allow for faster response times.
• Quickly react to changes by reallocating resources and relying on shorter-term contracts.
• Regionalize sourcing using nearshoring, friend-shoring, and integrating knowledge to reduce dependence on global suppliers during times of delays and unrest.
• Move to agile planning to cope with uncertainty and keep more safety stock on hand “just in case.”
• Improve transparency and traceability to improve supply chain performance, detect bottlenecks, and comply with sustainability mandates.
• Build in circular and sustainable practices, such as integrating environmentally responsible benchmarks into areas like product design, materials sourcing, and end-of-life product management—and using recycled plastics for 3D printing.
• Shore up supplier relationships by diversifying your supplier base and facilitating supply chain planning and collaboration based on standards-based data sharing and cloud software.
• Develop risk-based supply chain plans by running simulations, projecting the impact of factors like demand surges through scenario planning, and using advanced data analytics to gain insights into all risks.