Global supply chains received a stark wake-up call when COVID-19 impacted various industries and manufacturing sectors, fundamentally altering perceptions of supply chain risk across all enterprises.
Consider supply chains as the continuously operating engine of a company. They drive the manufacturing of products and facilitate sales, generating vital revenue. Any disruption in the supply chain can be likened to a sudden halt in a perfectly tuned and oiled machine, causing significant operational challenges.
In the years following COVID-19, there has been a noticeable shift in the types of supply chain risks that enterprises commonly face. These risks often originate from third-party vendors, known as third-party risks, or from internal mismanagement and non-compliance, leading to significant disruptions.
To combat these risks, organizations have adopted various strategies, including third-party risk management and comprehensive supply chain risk management. However, as the landscape of supply chain risks continuously evolves, it becomes crucial for companies to adopt flexible and dynamic risk mitigation strategies. Such adaptability is key to enhancing resilience against unforeseen challenges.
Gartner’s recent study highlights a shift in business approaches towards risk resilience. Richard Howells, Vice President of Solution Management for Digital Supply Chain at SAP, emphasizes this evolution:
“Supply chains are transitioning from a focus on low cost and optimization to prioritizing risk resilience and sustainability. This shift requires a delicate balance to maintain reasonable costs without compromising efficiency or company profits. Embracing risk resilience involves preparing for a wide range of potential scenarios.”
In this article, we delve into the current definition and implications of supply chain risk. As the years progress, staying informed about the evolving risk factors that significantly impact supply chain stability is more crucial than ever.
What does Supply Chain Risk mean today?
Not long ago, supply chain risks were somewhat peripheral concerns for organizations. However, today, due to the expanding diversity of risk factors, supply chain risk management has ascended to a central role in the operational strategies of most global organizations.
The pandemic served as a critical wake-up call, but it’s the growing issues like escalating cybersecurity threats, data privacy concerns, and economic inflation that have propelled supply chain risk management to the forefront of business operations. These elements underscore its importance in today’s corporate world.
The evolution of technology, while beneficial in many ways, has also contributed to this heightened concern. As supplier networks become increasingly interconnected and complex, it poses greater challenges for companies to identify and mitigate risks, especially during disruptions.
Our research indicates a pattern in the types of supply chain risks currently manifesting in the market. These risks are indiscriminate, potentially impacting any business, regardless of the model or efficiency of its supply chain.
In the following section, we will delve into specific supply chain risks that organizations should be prepared for in 2024.
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Supply Chain Risk you should keep an eye out for in 2025
1. Global Political Unrest or Geopolitical Risk
Global political unrest remains a significant disruptor for supply chains worldwide. Ongoing tensions—whether it’s the US-China trade dynamics, the Russia-Ukraine conflict, or emerging geopolitical flashpoints—continue to create uncertainty in global trade and logistics.
These geopolitical tensions make operations unpredictable, driving up costs, adding complexity, and reducing efficiency. They also impact major global logistics routes, sometimes forcing businesses to rethink their supply chain strategies overnight.
It’s not just about international conflicts—domestic political instability, strikes, and regulatory shifts can also create bottlenecks within supply chains. Companies need to stay prepared by diversifying suppliers, maintaining alternative sourcing options, and leveraging technology to enhance agility.
Technologies like AI and predictive analytics can help businesses react faster to disruptions by identifying the most resilient links within their supply chains, enabling them to make proactive decisions in the face of global uncertainty.
2. Economic Challenges and Dealing with Inflation
Inflation has long been a significant factor influencing supply chain risks across various industries. During the pandemic, global supply chains experienced a surge in demand for consumer products. However, meeting this demand became increasingly challenging as lockdowns worldwide disrupted logistical operations, leading to higher production and transportation costs.
Additionally, the pandemic-induced labor shortage, compounded by the need for strict health standards, created complex management scenarios within supply chains. This ongoing labor shortage is a critical concern, leading to slower production rates, disrupted distribution, delayed deliveries, and ultimately, customer dissatisfaction.
From an economical perspective as a supply chain risk factor, the rising costs of raw materials, freight, and labor, which are not anticipated to return to pre-pandemic levels, continue to exert pressure on manufacturing costs.
These escalating costs represent a significant challenge for companies, compelling them to rethink and restructure their supply chain strategies to maintain profitability and efficiency in an inflation-impacted economic environment.
The overall supply chain is expected to experience a substantial rate increase, estimated at 2.9% from January to December 2024. This escalation is attributed to ongoing economic and geopolitical market changes, a new norm in supply chain cost pressures, and persistent supply chain disruptions. The inflationary environment has notably shifted the dynamics within supply chain operations.
Where previously operations and productivity programs could offset inflation, the recent years have seen inflation rates ranging from 7 to 10 percent year over year, making such offsetting increasingly difficult. This high inflation rate imposes additional demands on supply chains and organizations to maintain and enhance productivity under these challenging conditions.
3. Disruptions due to climate change and being complaint with ESG standards
Climate change is no longer a distant threat—it’s actively disrupting supply chains worldwide. Extreme weather events like hurricanes, floods, and wildfires are becoming more frequent, delaying shipments, damaging infrastructure, and driving up costs.
Some of the most critical industries, such as semiconductor manufacturing and rare earth metal extraction, are particularly vulnerable to climate-related disruptions. Without proper resilience strategies, companies risk significant financial and operational setbacks.
At the same time, ESG (Environmental, Social, and Governance) compliance is becoming a business necessity. Investors, regulators, and consumers expect companies to work with environmentally responsible suppliers. However, while this push for sustainability is important, it also limits sourcing options, making supplier diversification harder.
To tackle these challenges, businesses need to invest in sustainable procurement, build climate-resilient supply chain frameworks, and incorporate environmental risk assessments into their operations.
4. Evolving Cyber Threat Landscape
The cyber threat landscape, particularly between companies and their third-party suppliers, is undergoing rapid evolution. As global supplier networks become increasingly interconnected, it’s critical to carefully consider how proprietary data is shared with suppliers.
The complex nature of these networks, often involving numerous fourth parties, presents an ideal target for hackers due to reduced traceability and transparency. An appropriate example is the Okta hack that took place in January 2022.
In this cybersecurity incident, hackers exploited vulnerabilities in the supplier’s system to infiltrate the broader supply chain network. Their goal wasn’t just to extract data from the vendor but to access the primary company (Okta) to breach its system and steal customer data.
This episode highlights the extent to which a supplier’s cybersecurity measures (or lack thereof) can expose your organization to risks. Ensuring robust cybersecurity isn’t just about protecting your own systems; it’s equally important to verify that suppliers are also implementing stringent cybersecurity measures.
In present day companies are using technologies like Internet of Things (IoT) in supply chain management. Though these technologies will widen the ease of managing a supply chain network for companies, on the other hand, these technologies can open up new ways for hackers to attack.
This necessitates a robust governance framework and risk management approach. While AI-driven security solutions and threat intelligence can significantly bolster your ability to predict and identify cyber threats, it’s worth noting that these technologies are also being exploited by cybercriminals to refine their attack methods.
To keep safe from these growing threats, it’s important for companies to work together with their partners. They need to create a strong security plan that includes always being on the lookout, choosing where to focus based on how big the risk is, teaching employees about security, using strong passwords and security checks, keeping their systems up-to-date, and making sure everyone in the supply chain knows how important security is.
In the End
As we move into 2025, supply chain risks are becoming more complex, requiring businesses to stay alert and adaptable. AI, IoT, and blockchain are transforming supply chain operations, improving visibility, and enabling faster responses to disruptions.
Sustainability and ESG compliance are no longer just nice-to-have initiatives—they are essential for long-term business survival. However, companies must strike a balance between sustainability goals and supplier diversification to prevent over-reliance on limited sourcing options.
Collaboration and transparency across supply chain networks will be crucial in tackling these challenges. By fostering a culture of shared information and risk management, businesses can navigate uncertainties, safeguard their operations, and explore new growth opportunities in an increasingly interconnected global economy.
