Supply chain risk management has declined in priority, with many organisations citing lack of bandwidth and budget as the biggest roadblocks. Yet, according to a new report, those that take a more pragmatic approach will capture the most powerful insights.

The AT Kearney and Rapid Ratings International report: 'Is Your Luck Running Out? Managing Supply Risk in Uncertain Times', found that today's supply management leaders have secured their position as a strategic business function by focusing on high-impact, high-visibility activities. However, managing risk has fallen to the bottom of the list of priorities. 

As a result, report authors say supply chains are often one issue away from a major disruption, and procurement firms are left vulnerable in today's "tenuous geopolitical and economic environment", where many public and private companies are in precarious financial positions.

"For most organisations, it is not a matter of if but when a supply disruption will occur," said Carrie Ericson, vice president with AT Kearney Procurement and Analytic Solutions, and co-author of the study. "Although most acknowledge this fact, few have invested in the systems and programmes needed to respond."

While disruptions are inevitable, authors say organisations that can quickly identify, diagnose, and resolve these issues are best positioned to proactively manage their supply chain risk. Companies that invest in risk management practices that link procurement, category, and supplier management strategies produce optimal results. 

The report offers the following 12 trends that it believes will shape the global outlook and operating environment through to 2025:

Geopolitical realignment
Geopolitical instability is increasing, with near-term uncertainty concentrated in the Middle East, North Africa, and South Asia. The US, Russia, and China compete for global influence across a range of areas, from cyber security to territorial disputes. The International Monetary Fund (IMF) predicts that Brazil, Russia, India, Indonesia, and China (BRIIC) will be among the ten largest global economies by 2020, ahead of the UK and France when measured in GDP at purchasing power parity. This increased power will put more pressure on resources and escalate overall competition for top-tier suppliers, although it may be partially offset by weakening prices for the commodities that many of these countries' economies depend on. Companies that have not implemented strategies to ensure continuity of supply could find themselves on the losing side of the supply-demand equation.

Continued global violent extremism
Terrorism has intensified in recent years, posing greater risk to major economies around the world. As countries and governments look to get control over this issue, it will no doubt affect the rules and regulations for international banking and shipping routes. Government policy will continue to be stressed by the conflict between identifying threats and promoting legitimate global trade and citizens' rights. As governments work to stamp out illicit activities, tighter rules and regulations will impact international banking laws and shipping routes, potentially affecting speed and ease of use of these networks for lawful business purposes and causing longer lead times and potential supply interruptions. 

US economic resurgence
The US is becoming the main engine of global economic growth, thanks to an improved labour market, continued rising consumer demand, and the world's best technology innovation. Its economy is projected to continue to grow at an annual rate of more than 2% through 2020, causing the dollar to appreciate against other major currencies. While this makes US exports less competitive abroad, imported materials and services that go into US products (cost of goods sold) are also less expensive, which improves the competitiveness of supply chains. 

The '2020-Seven' growth economies
While emerging markets bounced back quickly from the 2008–2009 financial crisis, more than
70% saw growth decelerate from 2010 to 2014, mainly driven by globally weaker external demand and inadequate policy responses to the changing global environment. Global growth drivers are shifting toward the Pacific Basin and seven new emerging markets that have the potential to perform strongly in the coming years: Chile, China, Malaysia, Mexico, Peru, Philippines, and Poland. This is due to their strength across a range of economic factors, as well as the size and quality of their labour forces, the quality of their infrastructure, their regulatory environments, and the status of their structural reform agendas. A focus on these seven markets offers firms significant opportunities to leverage the supply power of these emergent leaders and to restructure their value chains to serve these growing consumer markets.

A new resource slump cycle
Global supply and demand factors have ushered in a 13- to 15-year period of lower commodity prices. On the supply side, rising unconventional oil production (enabled by new technologies) and increasing production of biofuels have contributed to excess resources. Although Iran is still behind schedule in recapturing its former oil markets, the country's reintroduction as a global oil producer will eventually put more pressure on the supply side. On the demand side, China's slowing economy has meant a double-digit decline in its import commodity growth. Recent forecasts from the IMF and World Bank predict the global resource slump cycle will continue through at least 2020. While this will boost consumer spending power, it will also create challenges for many resource-exporting countries. Supply chains that rely on these resource-exporting countries could be at risk for supply interruptions from political instability resulting from slower economic growth.

Accelerating global climate change
As extreme weather events become more frequent, the economic costs of climate change are growing. More than 7,500 floods, storms, droughts, and extreme temperature incidents occurred globally between 1980 and 2012. This volatility not only has a negative impact on the input costs for industry's raw materials, but also has the potential to cause second-order problems such as social unrest as food prices rise beyond the reach of lower-income people. On the other hand, melting ice in the Arctic is opening up new shipping lanes and unlocking access to natural resources such as minerals, rare earths, and vast amounts of oil and gas.

Depopulation waves
Emerging markets will struggle with outward migration and brain drain, but rapid ageing in developed markets will create the greatest depopulation challenges with the most significant economic outcomes. Two major impacts of depopulation on the supply chain are labour shortages and weakening or failing transportation infrastructures. As labour shortages drive up the wages that employers must pay to attract workers, they also decrease tax revenues that governments use to build and maintain transportation and business infrastructure. In addition, as the consumer markets change because of shrinking populations, supply chains must be restructured to move investments to regions where customer bases are growing.

IT revolution 2.0
Current IT trends will disrupt regulations in various sectors and challenge traditional business models. For example, network orchestrators or platform economy creators that take advantage of mobile labour pools and underutilised assets will achieve more nimble and cost-effective supply chains. At the same time, these companies become much more susceptible to supplier and partner risks that could disrupt the entire business, necessitating much more sophisticated risk identification and management systems. Finally, as governments begin to grapple with the rise of the sharing economy, new regulations are emerging, creating more complexity for supply managers.

Rise of the machines
Technological sophistication and the growing presence of smart devices, unmanned systems, and robots will reshape businesses and households. According to Gartner's growth forecast, Internet of Things (IoT) devices will grow from fewer than 4bn in 2014 to 25bn in 2020. Access to the data provided by this technology should decrease the overall cost of our supply chains and de-risk them, allowing supply managers to respond much more nimbly to disruptions.

Evolving artificial intelligence
Advancements in artificial intelligence (AI) are creating opportunities for research and development as well as business use cases but raising serious questions about the future of labour and even of humanity. However, it remains to be seen whether AI will fundamentally change the correlation between productivity and employment.  Regardless of any time line, the impact will reverberate through our supply chains by decreasing overall costs and allowing for a more efficient allocation of resources.

Cyber insecurity
Growing cyber security issues will challenge governments and businesses. With all connected devices and systems vulnerable to attack, estimates put global cybercrime losses at somewhere between $375bn and $575bn annually, affecting key markets such as the US, Germany, Japan, France, and the UK. The growing IoT lacks strong security systems and is highly vulnerable to data theft. Implications for our global supply chains include the need to manage privacy, secure intellectual property, and protect from revenue loss – all challenges that will result in higher costs.

The changing nature of power
Power is increasingly diffuse and fleeting. At the same time, enterprises have come under attack as they lose their advantages in the control of information. Individuals are now radically empowered by new technology and more readily available information, leading to soaring expectations for services, transparency, and rapid change. Furthermore, the rise of the global middle class is leading to greater individualism and expectations for customised services. At the same time, as more people worldwide move to urban areas, power is becoming concentrated in cities. This presents new challenges and opportunities, including more concentrated customer markets, requiring us to rethink our supply chains to align with the shifting nature of power. 

Click here to download the full report.