Episode 25- Five Risk Megatrends That Supply Chain Teams Should Anticipate in 2024

Speaker A: Hello everyone and welcome to another episode of the Supply Chain Matters podcast hosted by Bob Ferrari. Supply Chain Matters has consistently been recognized as one of the top Internet blogs in the field of supply chain management. Our goal in this podcast series is to provide the best insights, um and thought leadership from guests experienced and knowledgeable in supply chain supply chain management. Areas to be discussed include business processes, advanced technology and various industry and individual business, product, demand and supply networks. And with that, here's your podcast host, Bob Ferrari.

Speaker B: Hello to all listening and welcome to episode 25 of our supply Chain Matters podcasting series. I am Bob Ferrari, the founder and managing editor of our blogging platform and I serve as mark moderator of this podcasting series. The Supply Chain Matters blog is consistently rated as one of the top blogs in supply chain management thought leadership and since our founding in 2008, we have garnered a global wide readership. This podcast medium serves as a supplement to the various published content on Supply Chain Matters and it is our opportunity to present a more two way conversational discussion on important topics for industry and global supply chain management teams. Now, as we record this podcast in early January, businesses in multi industry supply chain management teams are uh, now turning their attention to the year 2024. After a very challenging 2023. In conjunction with our uh research arms soon to be published 2024 pred industry and global supply chains, we are featuring a series of thought leadership guests that will be sharing perspectives and insights on what to expect in specific supply chain management, business process and technology areas in the coming year. And in that vein, I am pleased to have as our guest for this episode, Bindhya Vaikal. Since founding supply chain tech provider resilink in 2010, Bindia has helped transform the way that global organizations approach supply chain visibility and risk, driving them to shift from reactively addressing catastrophic supply chain events to putting preventative solutions in place through monitoring, mapping and planning. She is a founding member of the Global Supply Chain Resiliency Council and a member of the Advisory board of the MIT center for Transportation and Logistics. Mindia holds a Master's degree in supply Chain management from M. MIT and an MBA in finance. She was named Supply and Demand Chain Executive Executive's Inaugural Women of the Year and has appeared nationally on syndicated tv, radio, business and print media, speaking on the very, uh, active topic of supply chain resiliency. Thank you Virginia for taking time out of your very busy schedule to speak to our listening audience.

Speaker C: Thank you for having me Bob.

Speaker B: Thank you.

Speaker C: Great to be here.

Speaker B: So let's get started because this is a Topic I'm sure is going to capture a lot of interest for our listeners. Resilink has provided supply chain risk management identification and support services for quite some time. Would you summarize for our listening audience what were the most impactful supply chain management, operational and business support risk areas that occupied industry supply chain teams in 2023?

Speaker C: Yeah, absolutely Bob. So one of the things that Reslink does is we alert our uh, uh, using a lot of AI and machine learning, we scan news and disruptions globally across 100 languages. And we provide an early warning system where we send unique alerts for different events. It could be anything from factory fire to M and A to cyber incidents to natural disaster fines and other things. So in a given year, usually for the last many years, we've seen factory fires be almost the number one disruption type. Um, uh, we do see factory fire incidents uh, still remain very high, but we did see almost a 30% uh, drop in factory fires uh year over year. Um, uh, so I'm interesting, it's been interesting to also see M&As come down. Although we did see a ah, business sale go up 30% or you know, leadership changes go up about 21 uh, percent. But what was really interesting is that labor disruptions went up almost 60% last year. Um, so a very, very disruptive year in terms of labor disruptions. And I think m, many of us saw that. We saw not only the UAW strike but we also saw a lot of um, um, rioting and strikes and that kind of action in France, um, across other countries. So we saw a lot of labor related disruptions. Last year we also saw a lot of bankruptcies. In fact, year over year we saw 194% increase in bankruptcies in 2023 which was a record year, um, for bankruptcies.

Speaker B: Yeah, that, that's very interesting alone, you know, because we, you know you would expect that in a down economy and it's you know, talking to guests on these particular topics, you know we make the observation that uh, we've been fortunate in the US the economy has been uh, uh, resilient. Consumers continue buying, the economy marches along. But sometimes uh, we neglect to remember that uh, in Europe it's been rather difficult, uh, from an economic environment, uh, from overall supply chain activity levels, uh, from the geopolitical landscape. So you know it's interesting now that's manifested in bankruptcies and that sort of thing, isn't it?

Speaker C: Yeah. And I think we're very US focused but our supply chain is not. Our supply chain is Incredibly global. And if we look at what's happening across China, um, right now China is in ah, recession. A lot of companies are really struggling. Many companies are moving, uh, ah, operations out of China and China and uh, the US are engaged in an increasingly competitive, um, you know, um, um, and somewhat hostile rhetoric um, about trade restrictions and the like. And so companies rightfully are relooking at their extremely concentrated supply chain dependency on China, um, and not making further investments for the most part. In fact we see a lot of Chinese companies also investing, uh, and expanding their global operations outside China into countries like Vietnam and others. So we're definitely seeing that ripple effect across um, the supply chain because a lot of you may not know, but you might have a second or third tier supplier in China who is uh, struggling financially, going into distress. I mean in the high tech and semiconductor industry, almost 100, uh, small and medium, uh, enterprises that are in that extended sub tier supply chain went bankrupt last year.

Speaker B: Yeah, that's really interesting. And I also uh, when I reviewed uh, the data that uh, you put out on 2023, the most impacted industries was interesting because it included life sciences and health care, uh, as two among uh, the top five. And we saw that during the pandemic. Right. Those were the industries that were very much impacted. But yet it still continues, doesn't it?

Speaker C: Yeah, I mean overall, if you look macroeconomically, um, the rate and pace of disruptions overall is coming down. Right. So we did see in 2023, quarter over quarter, um, the, that inventory levels were stabilizing. A lot of companies had uh, gone into 23 with a lot more inventory on the books just because of the two years of massive, just in case inventory buildups that a lot of people were doing. Um, but then obviously that was stabilizing because interest rates went up, um, and some of those inventories became non viable in light of the fact that people needed to ah, free cash on the balance sheet. Um, and so we saw companies reduce inventory levels during the year, but given the disruptions were also somewhat lower than the year two years prior, um, we saw those just in case inventories really help companies not be uh, perennially disrupted. You know, every time something happened, um, we saw a little bit less scrambling that was going on.

Speaker B: Yeah, yeah, so that's a good transition to uh, the coming year 2024. And could you share with our, uh, listening audience what are the key megatrends that you feel that will significantly impact industry and global supply chains along with their leaders in 2024? And the reason I say they're leaders is because one of the headlines of our predictions is that 2024 is really going to test the leadership skills of supply chain leaders in the coming year. So maybe you can share some perspectives around that.

Speaker C: Yeah, absolutely. The five ways that we track uh, continued um, and increased trajectories of disruptions. One is obviously geopolitical. I mean just read the news and you see all kinds of concerning news that have massive supply chain repercussions. It started with um, Russia, Ukraine went into Israel and the war, um, the Red Sea. Now that spillover into the broader Middle east and what's happening where companies uh, now cannot use um, the Red Sea for transporting critical um, uh, shipments, um, and have to go around the African American um, straits to get to their ultimate destinations across the U.S. and Europe. Uh, but then that comes on top of the Panama Canal, obviously the drought and some of that. We won't go into that for a minute because I want to also talk about China, Taiwan and that whole brewing scenario, especially with the semiconductor dependency on uh, Taiwan and our um, global dependency across the supply chain on even the smallest items and raw ah, materials coming from China. A huge crisis potentially brewing, uh, due to the geopolitics of the two countries. Um, so I think that um, is a major mega trend. I think we're watching that very closely right now. The other one um, is ESG and compliance. I mean if you just look at the German Diligence act, uflpa, all the PFAS and other environmental restrictions, um, the level of uh, shipments that were seized under UFLPA, almost 2,500 last year were seized, um, under that act. Um, fines and those types of things went up 70% in 2023 where fines were imposed for lack of compliance on ESG initiatives. Um, so a huge, I mean ESG is now a compliance issue, right? It's no longer uh, it is no longer voluntary. Um. Bob, anything you wanted to add on those two? I have two or three others that I can talk about but wanted to see if you.

Speaker B: I just want to add it's very consistent uh, uh, again with uh, what we're predicting as well, uh, in that whole area of geopolitical and the implications of what that is. Uh, it just the business headlines don't go by any week now without some different report relative to what's happening in China. Um, you know, the economic challenges that the uh, economy is presenting to that, a shrinking workforce in the country as well. Um, and then this whole notion of how all of this is percolating back into various industry supply chain dimensions. So very much consistent with that.

Speaker C: Yeah, I mean obviously you mentioned labor disruptions. Um, I said labor disruptions were up 195% in 2023. Um, obviously the demographics play into this as well. We see across the US west, parts of South Korea, JAP and China, of course, um, where the labor force is aging, uh, and the average age of the population in certain countries is about, uh, 39, uh, 40 years old, which is, you know, at those demographics, people don't want to stand nine hours in a factory and do those types of heavy, um, uh, difficulties, uh, procurement, I'm sorry, warehousing, logistics, truck driver, ocean carrier. Those types of jobs are incredibly difficult to staff up. So we're experiencing a massive labor shortage across the skilled and unskilled spectrum. Um, and then climate. Right, Climate is the other massive issue. And we often think about climate more as hurricanes and floods. But actually the big impacts also come from drought, which is one of the most severe impacts if you think about it. Because when a lot of countries have invested in hydroelectric power and uh, when the water levels drop, you can't run those plants. And that means now your power being in a power rationing mode. Um, and factories need uninterrupted power, uninterrupted water in many cases. Um, so drought can have a massive supply chain impact.

Speaker B: Actually I'm glad you raised that because, you know, even, you know, as we look back at 2020 or even before that, you know, besides what you mentioned, the Panama Canal situation, which is drought related, uh, you know, we can remember in Europe, uh, during the last two summers, some of the rivers in Europe, uh, because of drought conditions, lowered to an extent that it impacted barge traffic that was uh, transcending certain countries. Uh, across Europe we saw that in US and the Mississippi transit, uh, levels were impacted by lowered water levels. So I'm glad you raised that because I think that's one fundamental thing that sometimes slips our minds.

Speaker C: Yeah, even in China, right. On the Yangtze, that was the same thing. Yeah, so I completely agree. Water, we rely on water, you know, and um, we have too much of it in the wrong places and we have too little of it in the other places. And the climate is changing with no signs of showing a reversal. It is continuously, um, and irrevocably changed. So if we just look at resolink state I given year few years ago on an extreme weather, uh, on the extreme weather side, reslink might alert maybe 90, 80, 90 alerts, you know, in that 20, 16, 17 time frame? Um, last year in 2022 we alerted over 350 and I don't yet have the numbers for 23 but that, that is the level of increase that we are seeing. And just now we're going through massive winter uh, climate again. Texas is going through a little bit of better thawing going on today, but last week was pretty difficult over there as well.

Speaker B: Yeah, yeah, important ah, area to keep uh, uh, focus on. So while we're on uh, the topic of supply chain risk management, one of the things I wanted to explore is there tends to be different approaches to which supply chain organizations and functions have responsibility for overall risk management and mitigation. Uh, as an example, the CFO of a business, uh, having accountability for overall business risk, uh, identification and mitigation, uh, and then supply chain functions having possibly accountability for supply chain risk identification and mitigation. From your conversation and observations and from Resilink's interactions with various industry, uh, supply chain stakeholders, which organizational approaches tend to be the most effective and impactful in terms of supply chain risk management? You know, the whole notion of that, not only the tracking but the mitigating of it. Can you share some of those thoughts with our listening audience?

Speaker C: Yeah, absolutely. So what we see in companies with the most mature and successful programs that are driving real ROI and value, uh, on an ongoing basis, um, supply chain risk and resiliency sits within the center of excellence, um, um, within the procurement function that does report into the chief procurement or chief supply chain officer. What is very, very important though is that risk is a top down, a uh, top down initiative, meaning you can't just put some program manager and call it a day. You have to have the chief procurement or the chief supply chain officer remain engaged providing strategic direction and guidance to the program on an ongoing basis forever. Right? So risk and resiliency have to be one of the pillars. Uh, it should be one of your top five priorities. If it's not, then the team is not going to focus on it. You have to have quarterly targets and metrics that the team needs to have as part of their competition, compensation and incentive plans in order for them to focus on risk and resiliency. And for mitigation and continuous action, you have to have quarterly readouts. Now this team should not sit isolated, meaning they should be plugged in with regular readouts into your enterprise risk management function. So dotted line into that function as well as when you do your quarterly business reviews, this team should come and present. Right? Um, they should be presenting their um, programs, goals and objectives Strategic supply chain mapping should be done and multi tier mapping working directly with suppliers should be foundational, which does require involvement and participation from your commodity management teams. Um, the other thing is procurement tends to focus too heavily on spend. But the first lesson the pandemic taught us, and the most important one was that the worst disruption happened on parts that did not hit our spend radar. Right. So we found that we were disrupted and begging for inventory from suppliers where we didn't even have contact info at the start of the problem. We had no visibility into where their factories were or who owned these companies or you know, who ran this. We had outsourced a lot of those low spend procurement supplier um, um, relationships to our distribution partners or our contract manufacturers or our group purchasing organizations. So chief procurement officers found themselves completely scrambling and expecting other people to find inventory and solve their problems. So my, my point is if we look at the chief procurement officer's role, this new reality requires us to look beyond spend. Number one, look at revenue impact of your parts and suppliers as a critical dependency on deciding whether this is strategic or not. Number three, it requires you to have multiple tiers of visibility into all of those m high revenue impact and single source parts and suppliers and then a strategic team that is driving that visibility, monitoring that as well as participation from your category managers to ensure that the supplier the way we treat suppliers changes. So we're not just focusing on high spend, but we're looking at those strategic high revenue impacting suppliers and we have uh, a point of contact, we have uh, regular conversations with them. We are aware of leadership changes, M and a business sale, those types of bankruptcy, financial health, those types of things in that tailspin. Bob, that tailspin has been long ignored and it is extremely strategic to our continued success uh, in the supply chain.

Speaker B: Absolutely. And I think the other part of that uh, would be the information that is collected on those suppliers, um, similar to what you have just shared with our readers listeners before, has to be more extensive in terms of um, you know, early warning indicators, you know, is there, you know, how are their financials doing, um, how has their quality levels been performing, um, what other things are they struggling with and that sort of thing. So you can possibly intervene if you have to uh, to take the necessary measures before a disruption occurs. Is that not true?

Speaker C: That is absolutely true. Now um, Bob, what I see a lot of best in class companies doing on the resin platform is um, if you are in procurement today, you might have one tool for financial risk, one tool for sustainability, a separate one for supplier Risk and monitoring. And so one of the things we do with all of our customers is we bring all of those different risk indices into our platform so that when you're a commodity manager you shouldn't have to go hunt down your different risk scores. You should be able to look at your risk across all of the dimensions, like sites in the natural disaster region, sustainability score, cybersecurity score of your supplier, the financial health score on time delivery cost quality, the regular supplier scorecard metrics, all in a single place. So that when you now take those risk scores side by side with the spend and the revenue impact, now you can really look holistically and say for these five suppliers, financial health is weak and it's a higher revenue impact and I have a single source dependency. So there's a uh, strategy now that I can pursue for these 10 suppliers. They have a weak business continuity, they're high revenue impact, they're in a bad natural disaster zone. So maybe I pursue a backup site with them because their financial health is good. Right? So my point is having all of these risk indices collected, trapped for all of your suppliers, not just your high spend suppliers, but even the low uh, spend, but high revenue impact suppliers, and tracking that quarterly in a single place and making that part of your regular decision making on mitigation and prioritization, this is how you build that long term resilience proactively.

Speaker B: I'm glad you pointed that out. I think you've made some excellent observations there. In terms of how to look at this holistically, um, before we run out of time, uh, let's touch upon the topic of Resilink itself. You've mentioned some of the capabilities, um, what are your plans uh, for resilink in 2024 in terms of, of what our ah, listeners can expect in terms of added technology deployment, including, and I'm reluctant to even raise the buzzword, generative AI and being applied in these notions of advanced risk identification. Can you share anything with our listeners about that?

Speaker C: Yeah, absolutely. Um, number one, generative AI. I will start with that because we're actually really excited about Gen AI and the possibilities that it presents. I mean we are the natural, uh, language processing company. We look at um, uh, uh, news reports, alerts, disruptions and things like that across 100 languages, translate all of that, synthesize, clean it up, normalize and report out. So in terms of how Reslink is leveraging Gen AI, I mean we've been leveraging it now for nine months, ever since, since it got launched to accelerate the speed and efficiency and effectiveness of our early warning system. So this has already been in deployment. We piloted it within weeks of it being launched in 2024. Quite honestly, I have challenged my entire organization not to be scared of Genai, Bob, but to embrace it holistically. Because we look at technology as being our friend. We should not be scared of this technology. I think this can really fill in our blind spots. You know, all of us have. We are puzzle pieces. There are some things that are our strengths and then there are some areas where we have some weaknesses or opportunities for improvement and AI fixes that those for us. So I think it is a massive opportunity for all of us to even the playing field for ourselves. Personally, I also think that, um, we tend to throw bodies at problems a lot. Um, that is our normal, uh, uh, operating model. But what Gen AI does is it really opens up that opportunity, uh, of uh, if we leverage technology instead. Because every one of us is a silo, our heads are not connected. So I'm the sum total of my personal experiences and you're the sum total of yours, Bob. But our information is not, uh, connected. And so what Gen AI can do is if we can leverage technology, connect the ecosystems of different technologies that we have, and put Gen AI on top, the speed with which we can get to decision making is within seconds or minutes at the most. Things that take us, uh, six weeks to do, we should be doing in minutes and in the coming months. And we're not years away from leveraging it in supply chain, we're months away from leveraging it. So I think 2024, I have challenged my team to look at how and in what areas can Gen AI transform the way we interact, our customers interact with Resilink, period. Right. And so we are leveraging it in many different ways where you can just ask the system a question and instead of having to log into Resilink and see six different dashboards, you can come in, ask a question, and the answer just gets delivered to you. Or even better, because the system knows your preferences, what your focus is. Like, hey, I'm the category manager for displays and these are the things that I care about. And once you configure it, it just tells you everything that you need to know, um, based on that. So I think the power of Gen AI to really transform how we interact with technology is great. Um, we're embracing it holistically and wholeheartedly and I think how this and our strategy of how we partner across the ecosystem of other players is very different. So at resilink my strategy is partner, don't compete. So you see, Resilink has partnered with Blue yonder with um, uh, 09. We're connecting the Resilink data sets into their data sets to create a connected and unified ecosystem where information that we create can flow through uh, into operational actions. Um, so when we sends an alert it should be resulting in operational workflows on the planning side or logistics side. In Blue Yonder and um, uh, 09 type of systems, we see these as being massive opportunities to drive accelerated execution and truly help our customers turn the speed of supply chain execution itself into a competitive advantage. Now you compare companies who have solutions like Resilink with companies who keep adding more people who are going to keep operating at traditional take six weeks to solve a problem mode. It is just night and day. It's night and day.

Speaker B: Yeah, very much so. That's a great perspective by the way, about uh, what the technology can do and how it can be utilized. Thank you for sharing that.

Speaker C: Absolutely.

Speaker B: So I want to sincerely thank you for sharing with our listeners your observations and perspectives relative to this area of supply chain risk and the dimensions of that. I, uh, think we got a much um, more clearer understanding of what that involves. Um, any final takeaway thoughts that you would like to leave with our listening audience regarding what should they anticipate in 2024? Maybe a final thought?

Speaker C: Yeah, I think one final thought is um, that look, the difference between success and failure in an environment of increasing landscape of risks that are coming at us, uh, from every direction in a very unpredictable trajectory is to have muscle memory inside the organization where people know what technology to use, where to go for information, to have early warning and alert systems in place. These are foundational things now. These are not optional. And a lot of times we are hesitant about embracing and adopting technology. I think in 2024 that should be gone. We really need to use this year as a way to really push ourselves and to push our organization to the next level of maturity. And um, this technology, all of that that's available, is incredibly valuable in helping us not only succeed, but thrive. So we're not just surviving, we're thriving in an increasingly uncertain landscape. But what's getting in the way is adoption. So what I would take uh, away is um, give the technology a chance, Find a way to get past all the reasons why you cannot adopt something new and go forward and take a leap of faith.

Speaker B: Great, great. And how can our listeners contact you directly if they have some additional questions?

Speaker C: Absolutely. Reach out to me on LinkedIn I'm quite active and look forward to hearing from you.

Speaker B: Thank you Bindaya. This concludes our Supply chain matters episode 25 podcast five risk megatrends that supply chain management teams should anticipate in 2024 with Bindiya uh Venkol Stay tuned to the Supply Chain Matters blog for additional announcements as to upcoming guests and compelling topics related to supply chain management, business process and decision making needs. As mentioned in our introduction, our research arm, uh, will be publishing our own 2024 predictions. And I might add that when you are listening to this, we'll probably already have published them. So uh, come back and visit Supply Chain Matters. Uh, we'll have it in our research centers. Please feel free to contact me with your requests for additional timely topics. In the meantime, this is Bob Ferrari signing off until our next episode. And always remember, supply chains do matter for successful business outcomes.

Speaker A: Thanks for listening to this episode of the Supply Chain Matters podcast hosted by Bob Ferrari. For further information and insights, please Visit our websites www.theferrarigroupuh.com or the Supply Chain Matters blog at www.suppply chain matters.uh com. Thanks again for listening and goodbye.