Pandemic Disruptions Lead Businesses To Reduce Supply Chain Risks

List--1. Product 2. Track  3. Connect 4. Logistics 5. Supply Chain 6. Locate. The term Supply Chain is in white letters with an arrow pointing to it.

March 06, 2023 |

List--1. Product 2. Track  3. Connect 4. Logistics 5. Supply Chain 6. Locate. The term Supply Chain is in white letters with an arrow pointing to it.

For many businesses, the far-flung supply chains that had become a critical element of operating models broke in the face of the COVID-19 pandemic.

Since then, the Russia-Ukraine war and other geopolitical tensions—in addition to various other risks—have caused many businesses to take a fresh look at their supply chains, according to a new report from Willis Towers Watson (WTW).

The February 27, 2023, WTW report, 2023 Global Supply Chain Risk Report, is based on a survey of risk and supply chain leaders in eight sectors: life science; semiconductors; food, beverage, and agriculture; logistics; complex manufacturing; construction; energy; and renewables.

"We found that most businesses suffered larger than expected supply chain losses during the crisis," WTW says. "As a result, a large majority are reviewing their supply chains and considering a range of solutions to reduce complexity and risk, and boost resilience."

Those businesses face a variety of significant obstacles as they look to reshape their supply chains, however, according to WTW. Among them are continuing shortages of labor and raw materials, external geopolitical and weather risks, and a lack of alternative suppliers.

"For many, just getting full transparency of all the links and vulnerabilities in their supply chain is a difficult task," the WTW report says. "But those who are tackling these issues and taking action to simplify and secure their systems are reaping a dividend through more robust supply chains that are likely to better withstand future shocks."

Among the key findings of the WTW survey were that 65 percent of business leaders reported supply chain-related losses that were higher or much higher than expected over the past 2 years, though 58 percent expected disruptions to be short term, while 25 percent anticipated long-term losses.

"The pandemic was the greatest shock to global supply chains in living memory," the WTW report says. "A domino-effect of inter-related factors cascaded through production and logistics networks, from shortages of raw materials and components to shipping delays, port blockages, and a lack of truck drivers."

In the face of that experience, WTW found that 65 percent of those surveyed have made improvements to their supply chains, while 18 percent have completely transformed their supply chain management approach following the pandemic. Some 58 percent expect to make significant supply chain changes in the next year, according to the report.

A key focus for those surveyed is working collaboratively with their suppliers, with some 53 percent of those surveyed citing such an approach as among their greatest opportunities for improving their supply chains.

As they look to improve their supply chains, supply chain transparency is emerging as a major challenge, WTW found. Of those surveyed, 73 percent agreed or strongly agreed that supplier concerns about proprietary knowledge or intellectual property made it difficult to achieve supply chain transparency, WTW says.

"This may help to explain why more than three quarters (77 percent) said they lacked the data and knowledge to understand their risks," the WTW report says. "Only 12 percent said they had identified all the data they need to manage supply chain risks with robust processes to gather it."

The WTW report also notes that over time some businesses have become increasingly distanced from the furthest reaches of their supply chains, in some cases not having direct relationships with suppliers beyond the first tier. "In the most complex chains, they may not even have visibility of all the suppliers, sub-contractors, and logistics partners involved," WTW says. "This can make it very difficult to identify, assess, and manage risks."

WTW found several insurance-related concerns around businesses' supply chains. While 89 percent of those surveyed said they believe insurance solutions for supply chain risks are critical, 80 percent said a lack of insurance solutions was among the biggest challenges to addressing supply chain risks over the next 3 to 5 years. "This may reflect the lack of cover for pure economic losses resulting from shortages and delays in most property and marine cargo policies," WTW says.

Only 17 percent of those surveyed said they had specific insurance to cover business interruption risks in their supply chain, WTW says, though 53 percent indicated that they thought the exposure was covered by other insurance. Just 25 percent of survey respondents indicated confidence that they are sufficiently covered for the impact of extreme weather on their supply chain, the report says.

Top supply chain risk factors cited by those WTW surveyed included cyber risks, economic uncertainty, and inflation, while respondents frequently identified raw material shortages, logistics and warehousing, and components as supply chain factors that will have an impact over the next 2 years.

The WTW report cites deglobalization, digitalization, inflation, labor shortages, sustainability, and COVID-19 as supply chain trends to watch in 2023.

With inflation, rising wages, labor shortages, and political instability reducing the benefits of globalization, more businesses are re-examining where they locate production and source materials to reduce risks and costs and strengthen resilience, WTW says.

Meanwhile, beyond digitalizing their own operations, businesses will make increased use of digital tools to track assets in their supply chains, according to WTW. "This will be enhanced by Internet of Things applications which can monitor the condition of goods and track them on the move," the report says.

While there are signs that inflation might be easing in some regions, supply chain costs such as raw materials, labor, energy, and transportation continue to increase, WTW says. "Because the supply chain is interconnected, when prices go up in one area, there is a knock-on effect down the line," the report says.

For a number of reasons including aging populations, skills gaps, and strikes, labor shortages will continue to be an issue for supply chains this year, according to WTW.

Extreme weather is making some raw materials harder to harvest or access, WTW says, while floods, fires, and storms are also affecting supply chains.

And, while many businesses are nearly back to normal operations following the pandemic, COVID-19 remains a supply chain threat, the report says. "Any potential new variant could result in more lockdowns and restrictions that could threaten supply chains," WTW says.

March 06, 2023