Globalization has brought countries closer than ever before, which is why some countries’ actions tend to have ripple effects on the rest of the world. Geopolitical events in any part of the world have a direct and indirect impact on other countries’ trade, finance, supply chains, and economies. Besides geopolitical tensions, natural disasters, pandemics, and other unforeseen events can also impact economic activities. These effects are more profound when the events involve large and dominant countries.
One of the unexplored risks of global events is non-compliance. In this article, we explore how global supply chains get disrupted and its potential impact on compliance.
A Deeper Look at the Causes of Global Supply Chain Disruption
The factors disrupting global supply chains impact the flow of goods and services, leading to delays, increased costs, and compliance challenges.
Some of the key factors are:
Geopolitical Tensions
Trade wars, sanctions, and political instability can disrupt supply chains. For example, the trade war between the United States and China resulted in tariffs on various goods, disrupting supply chains that rely on these imports. Businesses must navigate these geopolitical risks to maintain smooth operations.
Natural Disasters
Earthquakes, hurricanes, floods, and other natural disasters can halt production, damage infrastructure, and disrupt transportation networks. The 2011 earthquake and tsunami in Japan, for example, had a profound impact on the global supply chain for electronic components and automobiles.
Pandemics
Though pandemics are not as common as natural disasters, still their impact can be lasting. The COVID-19 pandemic is a prime example of how a health crisis can disrupt global supply chains. Lockdowns, travel restrictions, and workforce shortages led to significant delays and increased costs.
Cyberattacks
With increasing reliance on technology, cyberattacks pose a significant threat to supply chains. Ransomware attacks, data breaches, and other cyber threats can disrupt operations and compromise sensitive information.
These disruptions in global supply chains affect the movement of goods. In particular, businesses can find it hard to procure the raw materials needed for production, resulting in manufacturing delays and the resultant profits. Another impact of disruption is non-compliance with existing laws and regulations, resulting in heavy fines and reputational loss for businesses.
Compliance Challenges in a Disrupted Supply Chain
Maintaining compliance in the face of supply chain disruptions is a complex task, as you’ll have to fight multiple fronts simultaneously. Nevertheless, you must adhere to key regulations and standards, including the Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, and industry-specific regulations.
Here are some key compliance challenges:
Regulatory Compliance
Different countries have different regulations governing trade, labor, and environmental standards. Supply chain disruptions can make it difficult to comply with these regulations, especially when sourcing from multiple countries.
Transparency and Traceability
Ensuring transparency and traceability in the supply chain is essential for compliance. Businesses must have visibility into their suppliers’ practices to ensure they meet regulatory standards. Disruptions can obscure this visibility, making it challenging to verify compliance.
Third-Party Risk Management
Many businesses rely on third-party suppliers and partners, and managing the compliance risks associated with these third parties can be tricky. Supply chain disruptions can impact the ability to conduct due diligence and monitor third-party compliance.
Ethical Sourcing
Consumers and regulators are increasingly demanding ethical sourcing practices. This includes ensuring that suppliers do not engage in forced labor, child labor, or other unethical practices. Verifying and enforcing these ethical sourcing standards can be challenging when the supply chain is disrupted.
Now that you know the possible impact on compliance, let’s look at some strategies to stay on top of compliance standards while handling global supply chain disruptions.
10 Strategies for Managing Supply Chain Disruptions and Ensuring Compliance
To navigate supply chain disruptions and maintain compliance, adopt the below proactive strategies.
1. Risk Assessment and Management
Conduct thorough risk assessments to identify potential disruptions and their impact on the supply chain. Accordingly, develop risk management plans that include contingency measures for various scenarios.
2. Diversification of Suppliers
Relying on a single supplier or a limited number of suppliers can increase vulnerability to disruptions. Diversify your supplier base across multiple countries and regions to mitigate risks.
3. Investment in Technology
Leverage technology to enhance supply chain visibility and resilience. For example, blockchain technology can improve transparency and traceability, while advanced analytics can help predict and mitigate risks. Moreover, invest in cybersecurity measures to protect against cyber threats.
4. Strengthening Supplier Relationships
Build strong relationships with suppliers to improve collaboration and communication during disruptions. Also, work closely with suppliers to develop contingency plans while ensuring compliance with regulations.
5. Monitoring and Auditing
Regularly monitor and audit your supply chain to identify and address compliance issues. Conduct audits of your suppliers’ practices and ensure they adhere to regulatory standards.
6. Training and Education
Provide training and education to employees and suppliers on compliance requirements and best practices. This helps create a culture of compliance and ensures everyone is aware of their responsibilities.
7. Increased Focus on Sustainability
There is a growing emphasis on sustainability in supply chains. Ride this wave and adopt environmentally friendly practices to reduce your carbon footprint. Compliance with environmental regulations will become easier as well.
8. Digital Transformation
Emerging digital technologies like automation, artificial intelligence, and the Internet of Things (IoT) can transform supply chain management in the coming years. Use them to enhance your supply chain’s visibility, efficiency, and resilience.
9. Reshoring and Nearshoring
In response to disruptions, some businesses are considering reshoring or nearshoring their operations. This involves bringing production closer to home or regions with lower risks. Depending on the nature of your business, you can also look into this option to reduce dependency on distant suppliers.
10. Regulatory Changes
Governments and regulatory bodies are likely to introduce new regulations to address emerging risks and challenges. Stay informed about these changes and adapt your compliance strategies accordingly.
Thus, these are some ways to manage compliance during global supply chain disruptions.
Final Thoughts
Global supply chain disruptions have a significant impact on businesses, especially in terms of compliance. These disruptions can occur due to geopolitical events, natural disasters, cyberattacks, and pandemics. In this article, we discussed the proactive strategies to mitigate risks and ensure compliance with regulations. As the world continues to evolve, use these strategies to remain vigilant and adaptable to navigate future disruptions and maintain compliance.