Supply Chain Resiliency Poised to Become Competitive Differentiator

Key takewways in this article are the following:

• As technology and geopolitical risks converge, cyberthreats of all kinds become more prevalent and costly, from ransomware to trade-and-tariff wars.
• This “weaponization” of trade has become a significant threat to the supply chain, disrupting the flow of goods.
• Organizations need to build supply chain resiliency into their strategies in the face of an increasingly connected world with new attack vectors.

While COVID-19 cases have decreased globally, the long-term impact of the virus continues to ricochet throughout the economy and society.

The global supply chain, for example, has been hit hard over the past 15 months, creating supply shortages and imbalanced demand. Combine this supply chain dysfunction with geopolitical tensions, and the result is an explosive cocktail that threatens the stability of the trade system and society at large.

Experts at the recent say that cybersecurity pros will be on the frontlines of navigating supply chain instability in the years to come.

As the international stage and global economy becomes more interconnected via emerging technologies like Internet of Things (IoT) sensors, drones and video cameras, enterprises need to minimize risk and develop strategies for supply chain resilience.

Supply Chain Becomes Flashpoint for Geopolitical Conflict

“The cybercommunity will be front and center in determining how resilient our supply chains will be going forward,” said Andrea Little Limbago, vice president of research and analysis at AI SaaS company Interos. She noted that supply chain disruption and instability have created new battlegrounds for geopolitical conflict.

“We’re already seeing the chip shortages,” Limbago said. “We’re seeing battles over artificial intelligence and a whole range of cyber-risks. That future world order is already here. We need to be preparing our supply chains to be resilient against these major transformations driven by shifting geopolitics in emerging technology.”

According to one retail company, freight will be the most significant challenge in the coming months, with ocean rates more than doubling and air freight up by nearly 200%.

Digital Authoritarians and Democracies

China and Russia lead the way in digital authoritarianism – where governments used digital information technologies for information control within their borders through blackouts, surveillance and other tactics.

These authoritarian governments are well-known for participation in the weaponization of cybersecurity breaches. But what is relatively new, Limbago said, is the weaponization of trade so that these governments can push their own objectives.

As a result, industry in the U.S. has moved manufacturing out of regions that are likely to weaponize trade – such as China. According to Limbago’s data, one-quarter of companies have considered relocating operations, and 75% have enhanced the scope of existing reshoring plans.

Governments are also providing incentives to move away from offshoring in areas with geographic risk. Japan, for example, has allocated more than $4 billion to move operations out of China.

Digital authoritarians have also formulated a “playbook” of sorts for smaller players to emulate, which involves using emerging technologies to exploit geopolitical tensions, Limbago said.

The asymmetric nature of power in cyberwarfare is that smaller entities can use the playbooks of larger entities to have outsized impact and weaponize trade.

In 2020, for example, a conflict between Armenia and Azerbaijan created supply chain issues downstream. Drones were used in a conflict between the two countries, and, in turn, drone presence was seen as a potential threat to energy pipelines in the region, which also supplies international markets.

Building Supply Chain Resiliency

Limbago said that companies need to start shoring up their strength in the face of supply chain dysfunction. She noted tactics that will aid in this resiliency:

1. Decoupling and reshoring. Limbago said that reshoring and untethering from volatile regions can help companies resist the vagaries of supply chain dysfunction. She also recommended a sliding scale. “It’s costly, but it doesn’t have to be all or nothing. Focus on core competencies and IP that you need to protect and have them reside in protected areas and maintain other trade flows that are higher risk but don’t matter as much to your bottom line,” she said.
2. Know where data is. Consider your data-sharing strategy to ensure that data doesn’t travel beyond where it’s necessary.
3. Stay on top of regulations. Understand the regulations of not only your resident country but also the regulations governing tier 1, tier 2 and tier 3 suppliers.
4. Prepare for the new world order. Mental models are difficult to shift, but it’s critical to understand that we have crossed the chasm. While these trends were already underway, COVID-19 and increasing digitization have accelerated this new chapter. Don’t think the hands of time will turn back.
5. Build trust through partnerships and ethics. Focus on trustworthy networks, through zero-trust principles, supply chain supplier diversity and operational transparency.
6. Exploit technology. Technologies such as blockchain can help provide visibility into the supply chain.

Ultimately, Limbago said that supply chain dysfunction will continue and create geopolitical and economic risks. There is no turning back the clock, she emphasized, but enterprises can shape the future or, alternatively, be shaped by it.

“Resiliency will become a competitive advantage,” she said. “Those who are making preparations now for the disruptions over the next few years will have an advantage.”