Organizations are exposed to a myriad of supply chain threats; most recently, a potential U.S.-Canada trade dispute arising from President-elect Donald Trump’s proposed 25% tariffs for imported goods tops the list.
But despite the immediacy of the rhetoric around tariffs, many risks that surfaced during the pandemic are still present. And it’s causing companies to face increased supply chain exposure.
“Today it’s all about tariffs, and tariffs are super important because they’re going to have an impact on organizations that are trading cross-border,” says James Crask, managing director and global head of multinational client advisory for Marsh.
“We can see that over 40% of supply chains in the U.S. have exposures to Mexico, China and Canada, and for an individual company, generally speaking, about one-fifth of their supply chain base comes from one of those three countries,” he says.
“But when you talk about supply chain risk, it isn’t just tariffs,” Crask says. “There’s a whole bunch of issues that need to be considered.”
Among the issues companies face is supply chain blind spots.
“Most organizations lack a detailed understanding of what their supply chain actually looks like — who’s supplying them, who’s supplying their suppliers, and who’s supplying their supplier’s suppliers,” says Crask.
He says many organizations are only aware of their direct (or Tier 1) suppliers.
That obscures the risks companies may face. In fact, Marsh’s data says 65% of organizations have at least one critical “single point of failure or bottleneck” hidden in their supply chain.
Crask cites two organizations he’s worked with that have significant U.S.-Canada cross-border exposure.
One is an auto manufacturer in the United States. For every three Tier 1 suppliers the company trades with, he says, “there’s one additional supply chain dependency coming from Canada, so sort of a three-to-one ratio.”
The other is a heating and cooling manufacturer that has two suppliers in Canada for every Tier 1 supplier.
Beyond tariffs, climate-related events are challenging organizations’ supply chain resilience. More than 1 in 10 supplier sites are at high risk of natural disasters, with flooding and earthquakes as the greatest threats, according to Marsh’s data.
And a natural disaster at a supplier site could incapacitate production far down the line.
Prepare for and prevent disruption
To prevent unseen supply chain risk, first companies must “really [get] a handle on where your goods and services are coming from and who they’re shipping to,” says Crask.
Organizations can do that by mapping their supply chains, which can help them understand where their critical components come from.
“The reason why a lot of organizations struggle to get to grips with risks within their supply chain is because it’s really hard for them to know who actually supplies them below the Tier 1s,” he says. “And that’s because traditional methods of undertaking the mapping rely upon the goodwill of suppliers [offering] to actually give you data about who’s supplying them.”
Now, however, an abundance of data sources that weren’t widely accessible before can help organizations map their supply chains, Crask says.
“By tapping into the vast quantities of trade data, shipping manifests, customs, records, information and so forth, that is effectively a database of global trends, and you can see the physical exchanges of goods taking place globally,” he says.
“You can use that to map an organization’s supply chain, upon which you can build a whole bunch of risk assessments to help you become more proactive in responding to these kinds of threats.”
Next, companies must stress-test their supply chains to identify weaknesses.
Then companies can work out alternatives if one supplier is bottlenecked or otherwise incapacitated, says Crask.
Some organizations buy additional stock if their supplier faces disruptions, though that can be costly.
Other organizations sign contracts with other suppliers, so they can have dual-sourcing.
Also, some organizations have started to onshore or nearshore their supply chain to prevent geopolitical or logistical disruptions.
“I’ve seen some organizations take sort of slightly more nuclear option of buying the supplier so they can control them and vertically integrate it into their business,” says Crask.
Whichever option is most appropriate comes down to an organization’s risk assessment, he says.
Feature image by iStock.com/Sylverarts
