I am old enough to remember when the phrase “using your supply chain as a weapon” was meant completely metaphorically—as in, companies using their supply chain capabilities as a way to obtain a competitive advantage.
However, when Cam Holt, president of strategic markets for the supply chain technology company Exiger, talked about supply chains being “weaponized” at the Council of Supply Chain Management Professionals’ (CSCMP) annual EDGE Conference, he was decidedly not speaking in metaphors. Holt, who is also a retired U.S. Air Force major general, asserted that supply chains are a “new domain of warfare” and that countries are using supply chains as an instrument of national power.
Holt is far from alone in his view that geopolitics are playing a key role in present-day supply chain operations. Many others—while using less starkly militaristic terms—are clear that the days of running your business and seeing geopolitical events as just something happening in the background are long gone. As Per Hong, a partner and global lead with management consulting firm Kearney, said at the EDGE conference, geopolitical events and government policy are having a direct impact on operations in all supply chains.
For evidence, you need look no further than China’s recent announcement that it was imposing new export restrictions on 17 rare earth materials. This is significant, as China currently controls roughly 70% of rare earth mining and 90% to 95% of refining worldwide, according to the International Energy Agency.
Further upstream, the U.S.’s recent tariffs could also be seen as an example of using the supply chain as an instrument of national power by restricting access to the considerable spending power of the U.S. consumer.
TRUST BUT VERIFY
What does this mean for supply chain managers? Well, for one thing, it becomes increasingly important to know your supply chain all the way back to sources of raw material. Not only do you have to be aware of the risks of a supplier going bankrupt or the risks of a severe weather event shutting down manufacturing in a particular region, but you also need to know if your supplier could potentially run up against export restrictions on the raw materials it uses (or faces the risk of a nefarious actor gaining control of a supply chain chokepoint).
While being aware of the risks, companies should also be wary of letting the antagonism they are seeing on the world stage seep into their own relationships with suppliers. Experts at the EDGE conference strongly advised supply chain leaders not to get trapped in transactional thinking.
For example, Kate Vitasek, supply chain author and distinguished fellow at the University of Tennessee’s Global Supply Chain Institute, noted that there has been a swing away from single sourcing as companies look to build resiliency by diversifying their supplier base.
“But sometimes,” Vitasek argued, “you **ital{have} to single source; there is competitive advantage when you go deep with a supplier.”
The key, according to Vitasek, is forming those relationships only with suppliers who are willing to build transparency and trust.
“Don’t be afraid of dependency,” she urged, “instead be smart about it. Ask yourself, ‘Who am I choosing to have a dependency with?’ We must demand transparency and put in processes to mitigate risks.”
