Want a reminder of how delicate international trade can be? Look to the Strait of Hormuz, a key Middle East shipping lane that some feared Iran would shut down amid its conflict with Israel and the US.
Recent analysis of more than a million supplier locations of 80 major corporations by Marsh-owned supply-chain platform Sentrisk showed nearly all (95%) of the companies had at least one supplier in the region. Most of them are tier three suppliers, meaning they don’t work directly with the buyer and tend to be least visible to organizations.
Also noteworthy is that suppliers this far down the supply chain will encounter challenges months before corporate buyers feel the sting, according to Dave Petrucci, managing director at Protiviti.
But really, in a time of immense uncertainty, there are ample supply challenges that will spike a CFO’s blood pressure. Look no further than President Donald Trump’s latest tariff threats.
CFOs of organizations that don’t have full supply chain visibility—the practice of tracking a product from its origin story all the way to the grand finale, when it reaches the end user’s hands—are flirting with financial disaster. Experts told us that recent global events are evidence of that.
International conflict and new trade barriers “have provided a greater push, or emphasis, on this topic,” but well before this, companies have looked to supply chain visibility as a key to “unlocking the right use cases that can drive significant value,” Sameer Anand, who leads EY-Parthenon’s supply chain practice in the Americas, told CFO Brew.
Picture window. Having full supply chain visibility helps identify risks. This includes concentration risk, or a large number of suppliers located within the same area, according to John Davies, commercial director at Sentrisk. For example, an earthquake in China has the potential to cause major disruptions if an organization has numerous suppliers there.
If a company knows it has concentration risk in a specific area, it can seek out alternative suppliers or procure insurance to mitigate that risk, Davies told us. The key here is to know the risk exists in the first place.
Supply chain visibility allows organizations to be more proactive in their response, Anand noted. For example, if the company knows a snowstorm is expected in a region where they have a supplier, they have time to make alternative plans so they don’t lose out on product delivery. A company may also proactively redesign a product to avoid needing certain inputs that come from high-risk areas, or regions subject to new tariffs, he said.
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An organization’s first step to strengthening supply chain resiliency, Anand said, is to identify its biggest potential challenges. Doing this requires thorough scenario planning with all company functions at the table.
Anand recalled one tabletop exercise his firm led for a large industrial client. EY presented a hypothetical scenario where China was conducting military exercises near Taiwan. While many at the table were thinking about product risks, one leader worried about risks to expats who were working there.
“As a cross-functional stakeholder group, you start to talk about, ‘What am I worried about the most?’ And typically you find out it’s a multi-dimensional problem,” Anand said. “It’s not just about the product.”
The role of technology. The tools that businesses use to analyze their supply chains are getting scary advanced.
Now that these technologies and data sets are available, companies really have no excuse to not have deeper visibility in their supply chains, Petrucci agreed.
Senior leaders increasingly want tech that can simulate the things that may go wrong and come up with solutions.
“They’re actually asking for AI and simulation models at the top level of the business to make true business decisions, and pull up from some of the sub-function levels that traditionally those business decisions were made at,” Petrucci told us.
When deciding what investments to make, organizations should keep in mind what kind of insights would be most valuable, according to Anand. Some tools might be better for measuring climate risk, while others will be best used for predicting geopolitical risks.
Warning signs. Supply chain risks are big and complex, but companies have tools and strategies at their fingertips to gain crucial insights and make better decisions. So, what’s at risk for those that fail to take advantage?
Leaders who are averse to change, or those who fail to identify what investments will deliver the best value, may hold their companies back from stepping into the new era of supply chain visibility, Petrucci warned. He said he still sees some organizations making “feel-good decisions” about their supply chains that aren’t based on facts and data.
“Feel-good decisions just don’t work in the world today anymore,” Petrucci said. “They worked back maybe in the ’60s and ’70s, but they don’t work in today’s world. Having true data-driven analysis and…AI insights to support that are really what the next generation of leaders are looking for.”