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Supply Chain Risk Mitigation: Now More Important Than Ever

Russia’s untimely invasion of Ukraine has created a potentially dangerous and turbulent situation for logistics. These disruptive circumstances are not only limited to the affected area but are also directly impacting other areas beyond the war zone’s boundaries, urging the nations to work on supply chain risk mitigation strategies.

Russian invasion into Ukraine is affecting the logistics sector primarily and creating havoc for the global logistics industry. The logistics industry is currently facing significant risks which include transportation modes such as air, rail, road, and marine freight and fuel services risks.

However, targeted strategies have been planned to cope up with the logistics disruptions and overcome the potential risks as mentioned above. Some of the sanctions implemented on Ukraine by Russia are making the situation only worse with each passing day. Logistics industry always is at the dying edge of the boat in such war circumstances. National leaders group themselves on a round table and develop different coping strategies in such situations; however, risk mitigation is the only strategy that really counts. Some potential risks are discussed below that can rip off various aspects of the global logistics industry.

Air Freight Risk:

Air freight risk will eventually result in increased cost and limited capacity. It will create no-fly areas due to which flight house will be increased, and so will the operating cost. The impact and likelihood of air freight risk is exceptionally high; therefore, an adequate mitigation strategy must be created to combat any large disruption.

Mitigation strategies for air freight risk:

  • Extend the pricing contracts For the next seven to eight months.
  • Implementation of index-based price managements should be made on immediate notice.
  • Take core partners in confidence and work closely with them to mitigate the increased cost.
  • Remove capacity if not needed in air transport.

Rail Freight Risk:

Rail freight services between Europe and Asia will face disruption. Pan-European rail freight services will also face considerable transportation disruption. The European continental rail network will also be disrupted in the areas outside Russian territory. The impact and likelihood of rail freight disruption will range from high to low.

Mitigation strategies for rail freight risk:

  • Shift modes of transportation to air and water freight services.
  • Utilize the rail linking rail between northern Kazakhstan and southern Turkey.
  • Try using shorter routes for transportation.

Road Freight Risk: 

The disruptions and affected areas of road freight will almost be the same as rail freight. Road freight disruptions will be seen in Eastern Europe and Pan-European territory. Due to the potential risk, routes will be shifted to alternate areas, eventually increasing the transit hours. Similarly, the areas outside the Russian region will be affected equally. The impact and likelihood of road freight disruption will range from low to high.

Mitigation strategies for road freight risk:

  • Work closely with affected road carriers.
  • Understand and learn the changes in routes and services. 
  • Find out whether your carrier of choice will apply a surcharge.

Conclusion: 

Logistics professionals should not lose their hopes but must prepare themselves for the worst as well. Some of the immediate actions mentioned below should be taken to combat disruption risks.

  • Plan alternates for every sort of logistic risk.
  • Prepare for the unexpected and the worse.
  • Analyze risk assessments and implement strategies on logistics networks.
  • Reduce the risk exposure and constrain the surface area.
  • Enhance the transport planning route time.
  • Re-evaluate network resilience and capacity.
  • Prepare alternate sources of supply and transportation.
  • Create emergency funding for incremental costs of increased fuel charges.
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What Is Supply Chain Security?

supply chain security

A supply chain can vary significantly from one another. A company that manufactures electronic devices has a different supply chain than one that manufactures sports goods. So, the definition of what is supply chain security can not be explained under one set of rules and recommendations. 

In general, supply chain security involves protecting a supply chain against any physical threats or risks. It also considers the regulations set by local and international governments for the integrity of supply chains.

We noticed that many companies showed little to no interest in cybersecurity in the past. Companies did all in their might to protect their supply chains from physical threats, such as sabotage, theft, and terrorism. Factories would be visited by independent auditors, regulators, and corporations who do background checks on employees. Cargo would be documented, secured, and examined before and after shipping to prevent fraud or theft.

Physical attacks are still avoided by tracing shipments and rechecking regulatory documents. Vendors are also told to obtain shipments specified by quality criteria, and a company may employ multiple vendors to ensure a nondisturbed supply of commodities.

What Are We Neglecting?

While we don’t discourage anyone from paying much heed to physical supply chain security, we do not encourage them to focus on physical security alone. The recent supply chain attacks in covid-19 are an excellent example of the need for excellent cyberdefense in today’s world. Just as the cyber pandemic began spreading in 2020, the global supply chain started feeling the strain, which will continue into 2022. Millions of people started to use internet shopping as their primary, if not sole, method of acquiring items, resulting in a surge in transportation demand.

The computer components supply chain is an excellent example of this. The computer chip deficit is one of the worst situations in the present supply chain problem due to work-at-home situations, internet games and entertainment, and public demand.

The market forces for specific components were never higher for both manufacturers and buyers. Computer lovers are now enrolling in year-long waiting lists for graphics chips, while automakers report losses in millions owing to chip scarcity. 

5 Ways How You Can Ensure Better Cybersecurity

Risk Assessment:

It’s critical to understand where your new suppliers stand on cybersecurity before entering into supplier partnerships. What kind of safeguards do you and they have in place? What procedures and policies are in place to maintain data security? You want to know that sensitive client information will be kept safe in any data you share with your suppliers. You should secure all your partners, but those who play a critical role in your supply chain will be at higher risk and require greater caution.

Train Your Staff:

The most common cause of cyber attacks is still human error. As a result, it’s one of the most critical issues to address. While you should constantly strive to create a cyber security-aware culture inside your organization, this practice should also be supported throughout the supply chain. A good method to do so is sharing resources with vendors to educate their personnel about cyber threats.

Take Necessary Security Steps:

A supplier policy can effectively encourage an open relationship with your suppliers and set clear expectations between you. You can devote parts to cybersecurity and data protection in such a document, laying out what level of security your vendors should be able to demonstrate. Asking your suppliers to align themselves with an existing set of cybersecurity standards and certifications is one of the simplest ways to do this.

Be Cautious:

Small firms must evaluate the security of their suppliers and maintain a high level of cybersecurity to persuade more significant partners that they are not a security concern. Many firms, particularly in the public sector, are now demanding their suppliers meet specific security criteria before gaining contracts with them.

Transfer Data Safely:

Data must be transferred through secure channels and kept secure at all times in the supply chain. Because hackers are most likely to intercept data as it moves from one location to another, maintaining adequate security during this process is critical. Encrypting data before it is transferred is an excellent approach to reduce this risk.

Companies should also ensure that they have a thorough picture of the various types of data in their supply chain and where it all resides. Internal data (together with backup systems) and data that your suppliers have access to are included.

Conclusion:

Managing cyber threats in the supply chain doesn’t have to be difficult, but it is critical to accept responsibility for your own risk and adhere to standardized cybersecurity standards. Understanding all partners’ security processes, rules, and solutions is in everyone’s best interest. These actions lower risk throughout the supply chain and show clients, partners, and stakeholders that their secrets are secure with you.

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How did lowe’s home improvement modify its logistics network during pandemic?

Lowe’s started as a small hardware store in North Carolina, USA and it has now become a household name. From a local hardware store to becoming one of the most well-renowned home improvement retailers in the world, Lowe’s home improvement worldwide prominence has not come by chance or luck. They have proven time and time again, that their ability to adapt to different environments and fulfill customer requirements has been a crucial part of their success. 

In a recent statement, Lowe’s Executive Vice president of Supply Chain, Don Frieson stated that the two most integral reasons for Lowe’s success are; 

  1. Leveraging Coastal Facilities 
  2. Making a shift to a market delivery model

The toughest and the most profitable season for home improvement retailers is the springs. Springs push property owners in large numbers to seek out new tools, utensils, materials, and devices so they can prepare for the season. As the demand increased, most of the companies that were already short on supplies, failed to meet the customers’ demand. This our Lowe’s under enormous pressure, because not only were they catering to their usual market but now they also had to provide supplies for the other customer of other companies. At the end of the day, customers had to buy products from somewhere, right?

Lowe’s home improvement’s logistics network & the crisis at hand

To encounter this challenge, Lowe’s had to do a little renovation of their own. Don Frison stated that; “Just like any other company out there, we’ve had to make the right pivots to survive in this environment”. As most companies adapted a hybrid model or completely shifted to the remote work model, Covid-19 and the lockdown became the reason for a lot of new customers and generated sales for Lowe’s.  

Although it increased sales, it put enormous pressure on production. It was already suffering from an unstable inventory, and warehouse operations, as well as the extra load, seemed like too much to handle. 

To overcome the problem on hand, the company decided to expand its logistics operations and altered towards a more productive and efficient home delivery approach, along with other tactful steps. They also increased the cost of sales compared to the previous fiscal year. 

How did lowe’s manage the product shortage and other odds?

To ensure product availability, Lowe’s formed a combination of regional and flatbed distribution centers. This assisted in moving a large number of imports to the warehouses and the customers. Furthermore, the company has accumulated a few more practices since the pandemic, some of which go beyond these distribution networks.

When we look at the numbers, the progress of Lowe’s become quite evident. 

  • They have inaugurated 15 regional distribution centers, that pick up the products from vendors and deliver them to the stores or in some instances directly to the customers 
  • They have also added 15 flatbed networks, that deliver special products which require, delicate handling
  • The number of stores, that flatbed, and regional distribution centers covers has gone up to 115 
  • 35% of the Company’s product was shipped directly from the vendors, and the larger chunk, 65% was purchased and delivered via its distribution centers 

They further enhanced the operations by accounting for six new cross-dock delivery terminals to meet the last-mile shipments. They have also opened 4 Bulk distribution networks to manage huge merchandise such as heavy appliances. The company is also utilizing coastal holding which allows the stores to receive products early and minimizes the delivery time.    

Delivering the products from warehouses to the retailers 

To enhance the supply chain. Lowe’s is introducing a new system that will minimize the number of mid-parties and build a more direct supplying network for the customers. 

A Senior member of Lowe’s said that their current delivery system is not as sufficient as it should be, he added; “each store functioning as its distribution node for big and bulky products”. 

The incapability of the current delivery model made Lowe’s launched a new system. In this model, they completely skipped stores while delivering goods to the customers.  The turnaround time changed rapidly, now they could deliver products within the same day, or within just 4-5 hours to be precise. After its success, they have applied this model at various locations and the results have been remarkable. They have had improved operating margins, increased appliance sales, better inventory, fewer damages, and higher customer satisfaction rate due to prompt deliveries”.

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Pandemic Impact on Supply Chain in Shanghai & Rising Global Concerns

As the number of Covid-19 cases started to decrease around the world, China became one of the first countries to recover from the pandemic and it seemed like things were getting back to normal. But unfortunately, China’s recovery from the pandemic couldn’t last long and Shanghai, which is one of the most prominent cities in the East Asian Country, became the new epicentre of the rising Covid cases. Now, let’s learn more about the pandemic impact on supply chain in China.

How has the pandemic affected supply chain in China?

Even after implementing a successful strategy of “Zero-Covid”, China is once again in a challenging state. To bring down the severity of the pandemic, Shanghai is facing a massive lockdown that creates huge uncertainty in the supply chain.

During this month, the number of cases has risen to 26,000 a day and that’s a huge number considering the previous situation in China, which was quite under control. According to news sources, some areas of the city are starting to open despite the increasing number of cases, but the city at large remains under lockdown.     

The closure of Shanghai has brought major disruption to the supply chain, the costs are continuously on the rise and transportation of goods has become extremely difficult, and all the trucking operations are almost on hold. The disruption in supplies in the factories is slowing down the workflow, and as the numbers increase, the experts and analysts are getting more and more concerned about the persistence of the global supply chain.          

Increasing Supply Chain Problems in Shanghai

As the covid is spreading in Shanghai, it is getting more difficult for truck drivers to manoeuvre through the city. More checkpoints are being positioned verifying the covid-tests of the drivers and they need to get tested every 24 hours which is really frantic. Conducting these many tests without proper logistics is turning out to be more chaotic.  

Head of Network Operations at Flexport, Derek Bushaw stated that “Trucking is the lifeblood of the first and last mile”, he further added that “The first mile for the factories is that inbound delivery of components, and whether those are imported or domestically sourced, that’s still a challenge because it depends on trucking.”

There’s been a huge decline in the efficiency of shipping companies in the past month, the efficiency has dropped to over 30% because of the deficiency of trucking transport and logistics, which is detrimental to the global supply chain. The hindrances within the city of Shanghai are forcing a lot of cargo companies to end their operations and leave the city. 

To sustain production, Shanghai has implemented a “closed-loop system” which means that the workers spend all day in the factories and never leave the place. It is working so far but experts predict that they’ll eventually run out of supplies and they’ll have to open up the city for imports and supplies. 

Massive manufacturing plants such as Apple’s supplier Pegatron have announced that it has paused its operations in Shanghai due to harsh Covid-19 restrictions. Well, it is expected that the restrictions will ease up by the end of this month. Experts believe that if the disruptions continue till the end of this month, we’ll see a major increase in the price of commodities.  

impact of pandemic on supply chain
impact of pandemic on supply chain

Instability hazards: huge Impact of pandemic on supply chain

The biggest question here is that what guarantees the prevention of another lockdown? And if we’re being honest there’s no certain answer. Head of APAC Strategy at FAO Global, Cameron Johnson said that regardless of the future operations, the current lockdown will cause the product prices to rise at least 4-5 percent.  

Alongside Shanghai, the neighboring city of Kunshan is also facing strict lockdowns and restrictions, which is also damaging the total output and productivity of several factories. Similar to Shanghai, Kunshan is home to gigantic automotive and electronic suppliers that provide supplies to companies such as Apple and Tesla. So, the consequences will be worldwide and drastic.

Jena Santoro (Manager of intelligence solutions for the Americas at Everstream Analytics) believes that this is just the starting of this outbreak, she further added that this situation will only elevate regardless of the lockdown, and it’ll most likely be the next big covid-19 situation. 

Conclusion

The biggest issue here is that the future is uncertain, and planners can’t formulate a strategy. We can only wait and hope that the situation gets better and clearer as time progresses because otherwise, it doesn’t look that good for the production houses in Shanghai and Kunshan.