Businesses struggling to adapt amid more supply chain shocks

Having struggled to deal with the supply chain shocks of the pandemic, business ecosystems around the world are buckling amid a series of fresh problems. A new report suggests that half of all businesses now consider supply chain threats as their top concern in the coming year.

For more than two years, the on-going pandemic has created pressures on businesses by exposing weaknesses in global supply chains. Throughout the Covid-19 crisis, studies have warned suggested global markets could forfeit trillions of dollars in economic losses if they do not adapt their supply chains in the wake of the global emergency – while other think-pieces have regularly suggested that many companies were indeed making plans for the post-coronavirus era, to that end.

Recent months have suggested much of that may have been wishful thinking, however. As the war between Russia and Ukraine, mounting tension between the US and China, and record rates of inflation have added to the burden of the pandemic, the continued frailty of supply chains has become abundantly clear. Retailers are increasingly struggling to meet customer demand – even amid a downturn in non-essential purchasing – due to this reality.

A new whitepaper from global advisory and auditing firm BDO reveals that of 500 C-suite executives BDO surveyed across Australia, Asia Pacific, Europe, the Middle East, Africa and the Americas, almost half said their supply chains have been severely impacted over the last 18 months. Looking ahead, meanwhile, 47% of business leaders around the world believe a lack of supply chain transparency in the current conditions is their top concern for the current period. This rises to 62% in Europe – where the impacts of the Ukraine-Russia war have seen shortages of fuel and food products.

According to BDO, a lack of transparency poses two key supply chain risks to businesses. Most immediately, there’s a significant financial risk when a company doesn’t understand the regional challenges faced by their suppliers – something many companies are finding out to their cost now. However, a non-transparent supply chain also comes with a longer-term risk, on a reputational front.

Opaque supply chain practices mean a company may struggle to prove it meets heightened ethical standards demanded by consumers regarding things like environmental impact and modern slavery. Reflecting this, many more companies anticipate a worsening supply chain situation in five years from now. This is worst in the Middle East, where 75% of business leaders believe a lack of transparency will bite then; while in comparison, Europe has seen many firms already attempt to blend ESG policy with their supply chain – so the number worrying on this long term basis is a lower 28%.

Marita Corbett, National Leader for Risk Advisory at BDO Australia, commented, “With global uncertainty set to continue, and consumers demanding ethical and sustainable supplier arrangements, the case for resilient and transparent supply chains being managed by risk experts is stronger than ever. Improved transparency at every level of the supply chain will go a long way to minimise these risks.”

BDO’s findings suggest that firms are weighing up a number of avenues for strengthening their supply chain, in terms of transparency and resilience. The most common was found among 59% of respondents, who said they had created a full alternative supply chain as a backup, should their present one collapse. At the same time, many had reconsidered the global nature of their previous operations – with 54% looking to dual source raw materials, in case one source is compromised; while 50% have nearshored some production to avoid lengthy logistical movement of goods.

With all that being said, it might be worth taking those suggestions with a pinch of salt. For all the talk of using the pandemic as a teachable moment, and learning lessons from the supply chain chaos it caused, the world’s economy still finds itself in a similar position to that of 2020. And when another crisis emerges – be it another pandemic, a break down in international relations, or a sustained climate event – the global supply chain may well find itself back at square one, for all its promises of change at this point.