Maya Goethals, Director, Compliance and Risk Management, Bank of America Merill Lynch

Below is an insight into what can be expected from Stefano’s session at Vendor & Third Party Risk Europe 2024.

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

What are some recent examples of geopolitical tensions affecting supply chains?

Geopolitical tensions have increasingly reverberated through global supply chains, affecting various industries and disrupting the flow of goods. One notable recent example is the trade dispute between the United States and China, which escalated into a full-blown trade war characterized by tariffs on billions of dollars worth of goods. This conflict disrupted supply chains spanning multiple sectors, from electronics to agriculture, as companies scrambled to adjust their sourcing strategies and production processes to mitigate the impact of tariffs and trade uncertainties.

Another recent example is the geopolitical tensions surrounding the Russia-Ukraine conflict. The ongoing tensions and occasional escalations in this region have raised concerns about disruptions to key supply chains, particularly in industries such as energy and agriculture. For instance, disruptions to energy supplies from Russia could have far-reaching consequences for European markets heavily reliant on Russian natural gas. Additionally, uncertainty surrounding trade routes and access to key ports in the Black Sea region adds another layer of complexity for businesses relying on efficient logistics and transportation networks. These geopolitical tensions serve as a reminder of the interconnectedness of global supply chains and the vulnerability of businesses to external geopolitical risks.

Why is it important to consider geopolitical risk when working with new suppliers?

Considering geopolitical risk is crucial when evaluating new suppliers because it directly impacts the stability and reliability of the supply chain. Geopolitical factors such as political instability, trade disputes, or regional conflicts can disrupt the flow of goods, delay deliveries, or even lead to supply chain interruptions. By assessing geopolitical risk, businesses can better anticipate potential challenges and develop contingency plans to mitigate their impact. This proactive approach not only helps maintain operational continuity but also enhances resilience in the face of geopolitical uncertainties.

Furthermore, geopolitical risk assessment allows businesses to make informed decisions about supplier selection and diversification. Relying on suppliers located in politically stable regions or those with diversified sourcing networks can reduce exposure to geopolitical vulnerabilities. Diversifying the supplier base across different geographic locations can help spread risk and minimize the impact of geopolitical events on the supply chain. By considering geopolitical risk as part of supplier evaluation criteria, businesses can build more robust and agile supply chains capable of navigating the complexities of an increasingly volatile global landscape.

How can AI be used to monitor geopolitical risks?

AI can be employed to monitor geopolitical risks through various means, such as natural language processing (NLP), to analyze news articles, social media feeds, and government reports in real time. By analyzing vast amounts of unstructured data, AI algorithms can identify patterns, trends, and emerging threats, providing decision-makers with timely insights into geopolitical developments. Additionally, AI-powered predictive analytics can assess the likelihood and potential impact of geopolitical events, enabling businesses and policymakers to adjust their strategies and mitigate risks proactively. Overall, AI serves as a powerful tool for continuously monitoring and analyzing geopolitical risks, enhancing situational awareness, and enabling more informed decision-making.

Why is it important to test business continuity arrangements?

Testing business continuity arrangements is vital for ensuring that organizations are prepared to respond to and recover from unexpected disruptions or disasters effectively. Regular testing helps identify weaknesses or gaps in the continuity plans, allowing organizations to refine and improve their strategies before a real crisis occurs. By simulating various scenarios, such as natural disasters, cyberattacks, or supply chain disruptions, businesses can assess the effectiveness of their response procedures, communication protocols, and resource allocation. This proactive approach enables organizations to identify areas for improvement, update procedures accordingly, and train personnel to ensure they are ready to execute the continuity plans effectively when needed.

Moreover, testing business continuity arrangements builds confidence among stakeholders, including employees, customers, investors, and regulators. Demonstrating the organization’s ability to maintain operations and minimize disruptions during adverse events enhances trust and credibility. Regular testing also fosters a culture of resilience within the organization, where employees are familiar with their roles and responsibilities in a crisis and are better equipped to respond calmly and decisively. Ultimately, testing business continuity arrangements not only enhances the organization’s ability to withstand and recover from disruptions but also reinforces its reputation and competitiveness in the marketplace.

What effect do long-term horizon risks have on supply chain dependencies?

Long-term horizon risks significantly impact supply chain dependencies by introducing uncertainty and complexity into the planning and management of supply chains. These risks, such as geopolitical tensions, climate change, and economic instability, can disrupt the availability of resources, alter market dynamics, and reshape regulatory environments over extended periods. As supply chains become increasingly interconnected and globalized, long-term horizon risks amplify dependencies on specific regions, suppliers, or transportation routes vulnerable to these risks. Organizations must assess and adapt to these long-term horizon risks by diversifying their supplier base, investing in resilience measures, and adopting flexible supply chain strategies to mitigate dependencies and enhance overall resilience in the face of evolving challenges.