How Vulnerable Is Your Supply Chain?

On February 24, 2021 President Biden issued the “Executive Order on America’s Supply Chains.” It requires key industries to review potential vulnerabilities in their U.S. supply chains to prevent future shortages like we experienced during the coronavirus pandemic. But how are supply chain vulnerabilities defined? And what tools and capabilities are available to help companies assess and analyze those vulnerabilities? Those are some of the key questions I discussed with Chris Jones, Executive Vice President, Marketing and Services at Descartes Systems Group, during a recent episode of Talking Logistics. During the episode, Chris shared some data and insights from an analysis Descartes conducted and published recently in a whitepaper titled “U.S. Supply Chain Vulnerability Analysis.”

Exposing Vulnerabilities

As a way to ground our conversation, I asked Chris to define some key supply chain vulnerabilities companies may face. Chris notes that there are many, but focused on three that were exposed during the pandemic.

The first is a concentration of supply sources. Chris mentions, as an example, a company might think they are not vulnerable because they source from five different suppliers. However, if all five are in China, then they lack geographical diversity, which proved to be a major problem last year when the pandemic shut down operations there.

The second is geopolitical risks and how they could impact trade. Chris points to rare earth minerals as an example. Two of the largest sources for these minerals are China and Myanmar, which the U.S. currently has difficult relations with.

A third vulnerability Chris shared are logistics constraints, such as the congestion at the West Coast ports and the location imbalance of shipping containers, that are slowing the movement of goods across the supply chain. Chris says, “It’s not the availability of products, it’s the availability of assets to move those products that is the vulnerability.”

Assessment Tools and Capabilities

Given the examples above, as well as many other sourcing, logistics, and geopolitical risks, the question is what tools and capabilities are available to help companies assess their vulnerabilities. Chris states that global data intelligence tools, which track trade flows around the globe, are a valuable resource.

“What it gives you is a macro-level perspective, not just of your supply chain or your industry, but of how things like commodities are moving globally,” says Chris. “While the U.S. is the number one economy, we’re still just a fraction of global trade. There are many goods that never touch our borders, which is important when you think about sourcing. We use our global data intelligence tools to understand what goods are being imported and where they are coming into the country, as well as what else is moving that isn’t coming into this country that companies might be able to source from.

“It also looks at things like tariffs and trade restrictions. There may be sources of goods you’d consider, but tariffs may make them less economically viable. There also may be countries, companies, or individuals that the government has put trade restrictions on that you can’t source from legally.”

To cope with these vulnerabilities Chris recommends three actions: identify, analyze, and vet potential suppliers. “Look at trade flows for sources of goods outside of your supply chain you may not have been aware of; look at tariffs to decide if these sources are economically viable; and know who you’re dealing with. The U.S. is continuously adding names and organizations to its restricted parties list,” says Chris. “The good news is there are solutions out there that can help you get a handle on all of this to help you avoid getting into the situations we found ourselves in this past year.”

The Research

At the heart of our discussion, Chris shared a presentation on Descartes’ research that highlighted the vulnerabilities of three industries impacted by the pandemic and the move toward electric vehicles: Pharmaceuticals, Personal Protective Equipment (PPE), and Lithium-Ion batteries. Since a picture is worth a thousand words, I recommend that you watch the full episode to see the data and listen to Chris’s analysis of it. Also, since the research covered other industries too, I recommend that you download the report for additional insights. Then post a comment and share your perspective on this topic!