While we are all aware of the obvious risks associated with neglecting supply chain risk management — such as disruptions, delays, and financial repercussions — this post highlights some of the less apparent, more insidious costs.
Sun Tzu wisely stated in The Art of War, “Know thyself, know thy enemy. A thousand battles, a thousand victories.” The key to thriving in uncertainty lies in understanding both our internal capabilities and the external threats posed by shifting political landscapes.
So, what are some of the hidden costs of ignoring supply chain risks?
Erosion of Brand Equity
According to the 2021 Edelman Trust Barometer, 64% of consumers are belief-driven buyers, supporting or boycotting brands based on their societal values. Supply chain disruptions — whether due to product shortages or ethical dilemmas linked to sustainability or labour practices in politically unstable regions — can quietly erode your brand’s reputation, leading to lost market share and declining customer loyalty.
A notable example is the Suez Canal Authority’s (SCA) response to the Ever Given incident, where the container ship blocked 369 vessels for six days in March 2021. The SCA filed a $300 million claim for “loss of reputation,” recognising the importance of maintaining trust with shipping companies and global trade partners.
While the SCA is not a traditional consumer-facing brand, its credibility remains critical for global trade.
Regulatory Whiplash
Geopolitical upheavals often trigger rapid changes in global regulations. For example, in October 2023, the U.S. Department of Treasury sanctioned 275 individuals and entities across 17 jurisdictions for supplying advanced technology to Russia.
At Rule Ltd, we recently completed an enhanced due diligence project for a defence technology company, ensuring compliance with U.S. military sanctions against politically unstable nations. Organisations without proactive risk management strategies often find themselves unprepared for abrupt regulatory shifts, facing compliance costs and operational disruptions.
The hidden costs extend beyond penalties, as companies are forced to divert valuable resources from strategic planning to address immediate issues. Staying ahead of regulatory changes is essential to maintaining compliance while focusing on long-term growth and competitiveness.
Stifled Growth and Expansion
A risk-averse mindset stemming from unmanaged supply chain vulnerabilities can hinder business growth. Organisations may hesitate to explore new markets or launch new products when they lack confidence in their supply chains, resulting in missed opportunities.
Take 3M during the COVID-19 pandemic as an example. The surge in demand for N95 masks exposed vulnerabilities in their supply chain. Production limitations caused hesitation in market expansion, leading to lost market share and delayed innovation. 3M has since refocused on building supply chain resilience to better prepare for future challenges.
Hidden Dependencies
Many businesses underestimate the complexity of their supply chains, particularly hidden dependencies that can emerge during geopolitical tensions.
For instance, Apple faced disruptions when one of its sub-suppliers, Shanghai-based Semiconductor Manufacturing International Corp (SMIC), was added to the U.S. government’s entity list in 2020. This move, triggered by U.S.-China trade tensions, restricted SMIC’s access to American technology, creating bottlenecks in Apple’s production of display driver chips. The incident underscores how even well-managed supply chains are vulnerable to geopolitical risks affecting sub-suppliers.
What Are Your Thoughts?
These are just a few examples of the hidden costs of supply chain risks. What challenges have you encountered in your business operations? Share your insights and strategies for navigating these complexities in the comments below.
The global landscape may be unpredictable, but your supply chain doesn’t have to be! Get in Touch.