How Asia’s companies can take control of their supply chain risks

Supply chain disruption risks take center stage as global trade fragmentation accelerates

According to Marsh’s latest Political Risk Report, the fragmentation of global trade is accelerating due to ongoing geopolitical volatility and countries that prioritise economic security at the expense of trade alliances. This change has resulted in markets becoming more inward looking, self-reliant, and less connected to established trade networks. The recent tariff announcements from the US and the EU will also significantly change the way companies in Asia view their growth prospects and manufacturing and operational strategies.

The fragility of global supply chains, which were laid bare during the pandemic and subsequently exacerbated by wars and climate change, have caused supply chain disruption to rapidly move up the corporate agenda as a critical strategic priority.

The challenges to mitigating supply chain risk for companies in Asia

Yet, reshaping and enhancing supply chain resilience is a complex, time consuming, and costly exercise for several reasons:

Gaining supply chain visibility is difficult: Most businesses rely on contractual obligations or manual surveys to gain insights into the shape and constituents of their upstream supplier network, often with resistance from suppliers.
Traversing complex risk terrain: Assessing large groups of suppliers against a growing swath of wide-ranging risks is challenging. Risks as diverse as extreme weather events, cyberattacks, sanctions and tariffs, and financial performance across both suppliers and transport routes can all have devastating impacts on the reliability of a supply chain. However, very few companies possess the deep risk and industry expertise to measure and quantify the holistic impact.
Diversifying supply chains: Diversifying from an established cluster of suppliers and incorporating new suppliers require an enormous amount of due diligence. As the shift in supply chains accelerates, many established data sets quickly become out of date.
Assessing talent and capabilities: Diverse labour costs, access to talent and skill sets, and local regulatory compliance all need to be factored into the rebuilding of value chains in new markets.

Practical ways to better understand and manage supply chain risks

Companies in Asia can partner with a trusted risk advisor to formulate a holistic approach to mitigate supply chain risks by:

Gaining full visibility into value chains, both upstream and downstream: Artificial intelligence (AI) and big data tools are now capable of helping companies map their suppliers digitally, saving time on manual mapping with the ability to be frequently refreshed to reflect the dynamic nature of global supply chains. These tools can be combined with satellite and other technologies to validate the location and trading routes to generate a comprehensive and complete picture of the supply chain ecosystem.
Identifying potential vulnerabilities: Beyond transparency, identifying structural issues such as over-concentration and bottlenecks is important. Not all suppliers are equally important, and often a small and seemingly innocuous supplier of critical parts can cause disproportional disruptions.
Overlaying with key risks that can affect the supply network: The key risks companies are focusing on currently include natural hazards, geopolitical, sanctions, cyberattacks, and financial performance. Environmental, social and governance (ESG) risk and carbon emission screening are also on the rise given their impact on reputational risks.

Once risk assessment and prioritisation are completed, operational resilience measures can then be extended to critical suppliers, both direct and indirect. Companies should:

Work with Tier 1 suppliers to conduct a deep dive to access the vulnerabilities of the sub-tier suppliers.
Ensure adequate inventory levels throughout the system to provide buffer while optimising for cost.
Work with suppliers on contingency plans to ensure integration across multiple layers of the supply chain.

While these initiatives will come at a cost, a more cost-effective approach to building resilience can begin with a smaller group of key suppliers, with the goal of providing the best return on investment (ROI) in the initial stages.

Insurance and financing solutions are also available to transfer some of the supply chain risks. For example, Contingent Business Interruption (BI) insurance and parametric solutions are both potential solutions. A thorough supply chain analysis — requiring robust supply chain data — is needed to access the capacity for these risk transfer products.

Turning risk into opportunity and competitive advantage

With Asia an integral part of the global manufacturing and trade network, multinational brands are increasingly under scrutiny on issues such as ESG and climate adaptation. At the same time, Asia-based manufacturers face similar scrutiny from their customers who seek to diversify their supply chains while fulfilling their sustainability credentials.

Amidst this backdrop, businesses in Asia have an imperative to enhance their supply chain risk management capabilities to safeguard against potential disruptions and losses. Rising above the challenges, Asian companies can seize this unique opportunity to leverage a more transparent, resilient, and sustainable supply chain to gain a competitive advantage and drive sustained growth.