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2023 Logistics Supply Chain Risk Report

by Editorial Team November 15, 2024

Without logistics most supply chains would grind to a halt, as the world discovered during the pandemic.

As we emerge into more normal trading conditions, businesses across industry are looking to logistics providers to help them improve and optimize how they move and store goods between their supply chain nodes.

Meanwhile, logistics companies face their own supply chain challenges, including workforce issues, rising wage demands, global geopolitical and trade tensions and pressure to decarbonize transportation.

How are logistics businesses adapting?

To find out how the sector is navigating this changing landscape, we surveyed 100 risk and supply chain leaders, from freight forwarders to shipping lines, airfreight operators and trucking companies.

How do they see the supply chain landscape? How are they building resilience? What are the main challenges and risks they face? And what will the supply chains of the future look like?

About our survey

When: November – December 2022

Who: 100 senior decision makers, including risk managers, supply chain and logistics managers and CEOs.

Where: Countries across Europe, North America, Asia-Pacific and Latin America.

Size: All companies surveyed had annual revenue over $250 million.

Ripple effect increases risk burden for logistics

Logistics is at the core of every industry’s supply chain. That means the sector’s risks are multiplied.

From cyber-attacks to extreme weather, firms need to worry not only about their own operations, but also the knock-on impact on their customers and how that might rebound on them.

Cyber risks

In our survey, cyber risks were believed to have the most profound impact on supply chains, rated by 58% as medium and 31% high impact.

58% believe cyber risks to have medium impact on supply chains and 31% said it would have high impact.

Freight companies are sharing more data with partners and customers than ever before, while the number of parties in logistics chains, often using linked systems, means there are more potential weak links for cyber criminals to exploit.

Because delays are costly for logistics companies and their customers, criminals may think they are more likely to pay to end a ransomware attack, making the industry a more attractive target.

Climate and environment

Almost half (47%) of respondents placed climate change and environment among the top global trends affecting supply chain risks.

Logistics firms are under a lot of pressure to help their clients meet their carbon reduction targets.

But there’s also pressure from governments to reduce emissions from transport more generally.

Climate impacts are also being felt in extreme weather events, which are increasing in frequency and pose a growing disruption risk.

Increased product complexity

Increased product complexity topped the list of underlying factors playing the greatest role in supply chain risks, named by 35% as a top concern.

This may reflect the challenges of transporting increasingly specialized and sensitive products and raw materials, for example for in the life science sector, especially as clients demand more contractual indemnities against delay and damage.

Greatest challenge to addressing risks over next 3-5 years

Bar chart with 5 data series.

Question: Which of the following will pose the greatest challenge to addressing your risks over the next 3 to 5 years?

Participants were asked to rank top 3

The chart has 1 X axis displaying categories.

The chart has 1 Y axis displaying Values. Data ranges from 0 to 0.

ValuesLack of access to insurance and risk transfer solutionsLack of data, knowledge and understanding of these risksLack of internal risk management tools and insightLack of budgetLack of board buy-in0WTW

Greatest challenge to addressing risks over next 3-5 years

Question: Which of the following will pose the greatest challenge to addressing your risks over the next 3 to 5 years?

Participants were asked to rank top 3

End of interactive chart.

Economic risks

Economic uncertainty emerged as the second leading factor underlying supply chain risks, ranked by 30% among their top concerns.

The sector is at risk from price and wage rises, volatile fuel and energy costs and falling consumer demand.

If inflation dips back to near normal levels by the end of 2023, it could ease some of these pressures.

Geopolitical risk

Geopolitical risk was among the factors thought to have the greatest impact on supply chain risks, rated by 54% as medium and 29% high impact.

“The Ukraine conflict has disrupted some road and rail routes between Asia and Europe, while simmering tensions in the China Sea could put cause problems for more global routes in the future.” Breda Keating | Director, Global Marine, International Trade & Logistics

The conflict in Ukraine has disrupted some road and rail routes between Asia and Europe, while simmering tensions in the China Sea could put cause problems for more global routes in the future.

We’re also seeing more claims against logistics firms for customs errors as a result of complex documentation requirements post-Brexit.

Onshoring

48% of respondents said onshoring and near-shoring were among the top global trends affecting their supply chain risks.

As more products are sourced and manufactured closer to home, there will be fewer goods being transported around the world, which will impact demand for logistics services.

Pandemics

Though we may be past the acute disruptive impacts of COVID-19, the risk of a new strain of the virus, or a new unforeseen pandemic, seems to be still front of mind, topping the list of global trends with the greatest influence on supply chain risks at 56%.

3 key findings

63% said losses related to the supply chain had been higher or much higher than expected over the last two years.

85% of businesses said they have made at least some improvements in their approach to supply chain management in response to the pandemic.

77% cited a lack of insurance solutions among the greatest challenges to addressing their risks over the next three to five years.

Squaring the logistics circle

Logistics companies see supply chain risk from all angles. They need to manage not only their own risks but those of the companies they work for.

That’s not an easy balance to strike.

These challenges look set to grow as the risk of supply chain disruption stays high and customers demand more, both in terms of service delivery, sustainability and contractual obligations.

“Wider external factors, from geopolitics to cyber security increase the need for careful risk management.” Anthony Monaghan | GB Industry, Transportation Leader

Wider external factors, from geopolitics to cyber security increase the need for careful risk management.

Our survey shows that businesses are working to overcome problems and considering a range of strategies to increase resilience.

But they’re hampered by a lack of appropriate insurance solutions and difficulty getting hold of enough accurate data to manage their risks.

Working more closely with customers and partners can help companies understand their supply chains better and address these risks.

Diagnostic mapping and monitoring tools and analytics can help to visualize, quantify and assess risks across the chain and in specific locations.

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November 15, 2024

Why It’s So Hard to Map Global Supply Chains

by Editorial Team November 14, 2024

Supply chain disruptions in the last decade have generated lots of recommendations for companies to map their supply chains, identify sources of the most costly risks, and then take steps to mitigate them.

From the Harvard Business Review

Summary. Supply chain disruptions in the last decade have generated lots of recommendations for companies to map their supply chains, identify sources of the most costly risks, and then take steps to mitigate them. But a study of industries’ supply chains for…

The semiconductor chip shortage that hit the automotive industry in late 2020 highlighted two lessons in supply chain management.

The first is the lack of upstream visibility remains the Achilles heel of supply chains. Firms often do not know their suppliers beyond those in Tier 1 and are thus prone to shocks in the upstream supply chain.

The second is the supply chain of each firm is not isolated but is connected with other supply chains in a vast global network. This reality was made painfully apparent by the continuing shortages of semiconductors, when companies in different industries (e.g., automotive and consumer electronics) found themselves vying for chips from the same suppliers.

The solution to these problems requires not only gaining visibility into the upper tiers of a firm’s supply chain but also assessing which suppliers are prone to greater risk from the rest of global network.

Our study of this problem used a large public dataset of supply linkages in the economy compiled by Factset Revere. It enabled us to map more than 690,000 supply chain links across 47,390 firms in the global economy from 2003 to 2017. Although the dataset is at the firm level and does not capture specific product-level linkages, our study revealed lessons. In this article, we illustrate our key insights with an example of the supply chains from five major chip manufacturers to seven major automobile manufacturers. (The seven include the combined Fiat and Chrysler, which merged in 2014.)

Supply chains are webs or networks.

We found that supply chains are vast, dense, and dynamic. Between the five chipmakers and the seven automakers, there is an average of 90.5 intermediary firms each year. The average number of links that have to be traversed to go from a chipmaker to an automaker is 3.2. Moreover, there are multiple shortest paths from a single chipmaker to a single automaker in the same year (average = 7.9), and the majority of these links sit in different industries.

This supply network also keeps changing over time: A large number of links get disconnected and new links get formed each year. For example, there are only 14 intermediary firms that are common across the years of 2003 and 2017. Altogether, the collective network from 2003 to 2017 contains an astounding 416 intermediaries, 11,533 links, and 3,589 source-destination links.

The structure of this supply chain is not unique: For example, as these exhibits show, computer manufacturers’ supply chains for semiconductors had similar characteristics.

Gaining supply chain visibility in such a complex network is an enormously difficult undertaking. In fact, it is not practical for any single firm to unilaterally take on the mantle of exploring its complete upstream supply chain. If the most downstream firm works backwards, it would need a long time and considerable resources to explore its network tier by tier. Moreover, the dynamic structure of the supply network means that firms have to keep updating their knowledge of supply chains and reassessing their risks continuously.

Each firm’s supply chain is interconnected with the global supply network.

Semiconductor manufacturers supply chips to firms in a large number of industries. Indeed, we found that although the automotive industry is large, the seven car makers in our example collectively made up less than 5% of the pathways originating from semiconductor chip manufacturers. The remaining 95% of the pathways led to firms in other industries such as computer manufacturing and consumer electronics. Similarly, the automotive manufacturers source not only chips but also many other components, so that the semiconductor supply chain is a small part of their own vast supply chains.

This phenomenon increasingly characterizes supply chains of companies. As products have become more complex over time, they require components from an expanding set of new suppliers. As a result, supply chains have become more interconnected, making firms susceptible to shocks that originate in other industries. The effects of such shocks have long been studied in the academic literature on capacity-constrained supply chains. If demand suddenly increases or decreases in another industry, then it can affect the ability of suppliers to fulfill orders in one’s own industry. Particularly, in times of scarcity, these companies compete for valuable chips and components that use those chips.

Despite these changes, too often firms are focused on managing their buyer-supplier relationships as if they existed in isolation, ignoring the other firms that are connected with the same suppliers or the same buyers. Fortunately, the structure of the global supply network presents a solution to this problem.

The global supply network is fragmented into communities of firms.

Using community-detection methods from the computer science literature, we found that the global supply network consists of communities or clusters. We discovered that there were dense supply chain linkages among firms inside each community and different communities were loosely connected with each other.

In this network, all suppliers are not equal sources of risk. There are some that assume greater importance because they sit at the boundaries of communities, meaning that they are gateways across communities and a disproportionate number of pathways pass through them. Such firms are called “high betweenness firms.” Our analysis of the global network identified these firms, and they are remarkably stable over time. Typically, these suppliers are distributors or manufacturers that have diverse industry representation among their customers.

This structure suggests a two-prong approach. In the longer term, a firm — either on its own or, as we suggested is more practical, in collaboration with its Tier 1 suppliers — might establish a system for continuously mapping its supply chain. But in the shorter term, it might want to begin by trying to work with high-betweenness suppliers to gain information about its network. In fact, this strategy has become more relevant over time as the supply network has become more and more fragmented into loosely connected communities over the past two decades.

The effects of the Covid-19 pandemic, the subprime mortgage crisis, and other disruptions have shown how critically important it is to ensure the health of supply chains. Our study shows that firms, when managing their supply chains, need to keep in mind their connections with the larger network. The same methods based on graph theory in computer science that are used to analyze social networks, internet network attacks, and traffic flows are also useful to measure risk in our critical supply chains.

November 14, 2024

How AI Can Help Overcome the “Great Supply Chain Disruption”

by Editorial Team November 11, 2024

As the mayhem at ports persists with no end in sight , a troubling realization is sinking in: This chaos will not subside with time alone, and the impacts of the “ Great Supply Chain Disruption ” are being felt across the country. For example, about 30% of baby […]

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As the mayhem at ports persists with no end in sight, a troubling realization is sinking in: This chaos will not subside with time alone, and the impacts of the “Great Supply Chain Disruption” are being felt across the country. For example, about 30% of baby formula brands could be sold out soon, causing retailers to ration how many containers customers can buy and leaving parents worried that they won’t have enough food to feed their babies. This issue spans industries, impacting automotive, healthcare, hospitality, IT, manufacturing, apparel, and more.

So, what’s the problem? Infrastructure and a lack of truck drivers are often blamed. U.S. trucking companies experienced a record deficit of 80,000 drivers in 2021. It’s a logical explanation because truck drivers move a considerable portion of American freight. However, it’s not the only cause of the supply chain issues.

Reasons for Supply Chain Challenges

Current inventory and planning systems operate on fixed lead times and demand forecasting, while the real world operates on dynamic lead times. As a result, poor decision-making and bad planning by procurement leaders and financial executives are driving the port congestion. To correct this, leaders must forgo planning initiatives and actively manage their shipments.

Every time a transportation medium is changed when shipping goods, there are long queues due to changeover, further aggravating the problem.

Although it might seem logical to think new means of transportation can help alleviate the congestion, this isn’t a practical solution.

Choke points can’t grow without a significant investment, so the port constraints are fixed from an infrastructure perspective. For retailers to change how they plan and prioritize shipments, however, they’ll need help.

How to Plan Shipments More Accurately

Retailers need real-time inventory visibility across their enterprises to plan more accurately. Ideally, stowage plan information can be shared with terminal and third-party logistics companies exiting the gate as one value chain. This helps improve the efficiency of the first-in, first-out process.

AI can help determine changes in transportation or routes early enough to ensure on-time delivery for critical items.

Although AI implementation is still new to supply chain management, early adopters see success. According to McKinsey & Co., enterprises that utilized AI-enabled supply chain management improved logistics costs by 15% and inventory levels by 35%. As AI technology continues to improve, more companies are interested in benefiting from its capabilities. As a result, Infoholic Research predicts that AI in the logistics and supply chain markets will grow at a compound annual growth rate of 42.9% until 2023.

Use Cases for AI to Overcome Supply Chains Disruption

As AI adoption increases, there’s hope that it can help ease supply chain issues. Here are a few critical use cases

1. Predict on-time, in-full rate drops.

Customers are used to receiving purchased goods in a matter of days. However, World Economic Forum data shows that delivery times across the U.S. and Europe will hit record highs toward the end of 2021. Moreover, the current environment indicates that those increased time frames will likely continue.

Even amid unforeseen circumstances such as natural disasters and poor weather conditions, buyers expect that the companies they purchase from will have backup plans to ensure timely deliveries.

AI can help companies predict on-time, in-full drops early using historical data to identify how vendors fulfill orders. This allows companies to set deadlines to switch modes of transportation for customers who generate the most significant profit margins. Furthermore, AI provides full visibility of materials across the entire value chain, making it easy to identify and eliminate bottlenecks quickly2. Deprioritize high-cost, poor-fit customers.

Not all business relationships are a great fit. Gartner predicts that 75% of companies will drop poor-fit customers by 2025.

Although some companies might not be ready to break up with costly clients, these loss leaders shouldn’t take up space at the top of their priority lists.

However, it can be challenging for businesses to identify these customers. With the help of sorting algorithms, AI can automatically identify customers at scale who are bad for market-share gains and drain precious capacity. Additionally, AI can identify new opportunities for improvement and uncover how these opportunities will impact the bottom line.

3. Increase profit margins.

Without a clear understanding of consumer demand, companies risk pushing products that don’t sell, costing businesses millions of dollars.

AI-powered forecasting can help companies sense demand changes early, allowing them to optimize products for the best profit margins.

According to McKinsey, AI-enhanced supply chain management provides a 65% reduction in lost sales caused by out-of-stock products. On the sales side, AI can help sales teams identify upsell and cross-sell opportunities for key accounts. Often, companies have limited knowledge of whom they should be upselling. However, because most sales tasks happen digitally, sales teams constantly collect data. AI can leverage this information to help teams sell more efficiently.

4. Ship faster

In a survey by Convey, 28.6% of respondents said they are more likely to place an order with companies that can deliver products within a week of purchase. That’s a pretty small window of time, so faster shipping is critical if companies want to encourage consumers to shop with them.

AI can identify shippers who slow down the supply chain. Once identified, companies can remove the players who aren’t keeping the pace and replace them with someone more efficient. Furthermore, suppliers can use AI to create simulations based on bottlenecks and disruptions.

Once the AI knows that a specific portion of the supply chain is bottlenecked, it can anticipate when companies can expect a shortage based on inventory stock levels or extending lead times.

It will take more than time to move past the “Great Supply Chain Disruption.” If businesses truly want to deliver products efficiently, they’ll need to change how they plan. By implementing AI technology, companies will be better equipped with the information necessary to ease today’s supply chain challenges.

Ali Hasan R. is the co-founder and CEO of ThroughPut Inc., the artificial intelligence supply chain pioneer that enables companies with predictive replenishment for complex supply chains.

Image Credit: thisisengineering; Unsplash; Thank you!

November 11, 2024