CEO of Crisis Control Solutions LLC & Schwenk AG, a leading expert in risk and crisis management for the automotive industry.
One of the most important truths I’ve learned in my career is that risk management and crisis management are two sides of the same coin.
For over 10 years, my company has provided risk and crisis management services to clients in Europe and the United States, specializing in supply chain challenges in the automotive industry. The best way to manage risks is to avoid them altogether, but since this is impossible when running a business, we work with companies to recognize, assess and reduce risks. Since so many factors are out of our control in an ever-changing business environment, such as economic and geopolitical problems, we also help clients navigate challenges when risk management turns into crisis management.
Here are three of the key risk and crisis management challenges I’m encountering in my work and three strategies I recommend for mitigating them. My expertise is primarily in the automotive manufacturing industry, but these lessons can be applied to many different fields and enterprises.
Risk And Crisis Management Challenges
1. Geopolitical Instability
Conflicts, sanctions and political tensions all have serious impacts on the global supply chain. The Russia-Ukraine war has resulted in rising gas prices and disrupted trade in commodities and industrial inputs, and large manufacturers, including Ford and Boeing, have suspended operations in Russia.
Tensions between China and Taiwan are also affecting supply chains. In a 2022 Gartner survey of supply chain leaders, 95% of respondents reported “evaluating or executing changes to their China sourcing and manufacturing strategy,” and 55% said they had already acted on plans.
2. Price Increases
Inflation remains a challenge for businesses across industries. The U.S. consumer price index increased 3.7% from August 2022 to August 2023. Headline inflation in the eurozone was at 5.3% in August 2023, higher than the 5.1% expected and well above the 2% target.
3. Labor Shortages
A lack of skilled workers in various sectors is an ongoing supply chain problem around the world. A 2023 survey from the German Chambers of Commerce and Industry found that 53% of participating companies reported hiring difficulties due to labor shortages. In the U.S., around 1.4 million people lost manufacturing jobs at the beginning of the pandemic. While the industry has recovered the majority of those jobs, it is now struggling to fill vacancies; it had 693,000 open manufacturing jobs as of March 2023.
4. Slow Sales
All of these factors contribute to sales declines in some industries. In the automotive industry, global new vehicle sales in 2022 fell 2% year over year, with one analysis attributing declines to sanctions in Russia and ongoing supply chain disruptions.
Strategies To Mitigate Risks
Supply chain risks and their repercussions are multifaceted, and you must often address many problems at once. For example, your company may be dealing with constraints in liquidity, caused by factors such as price increases and reduced sales, that create a cycle that is difficult to break. Or you might depend on suppliers that have long delivery times because of issues in China or Ukraine or work with smaller suppliers that are struggling to meet production demands because of workforce shortages. Start by implementing the following strategies to reduce risks that could later become crises.
1. Reduce Dependency On Single Suppliers
It is inherently risky to depend on one supplier for any one component. Find a second source for each element you need, and have all of your suppliers under evaluation all the time. Check frequently to ensure suppliers meet your quality management standards, including by visiting important suppliers in person. Go see for yourself how operations are managed, and investigate further into any concerns you encounter. Have boots on the ground to provide you with the full picture, rather than trusting only in financial ratings or quality audits.
2. Face Problems Head-On
Step in and deal with risks as soon as possible, before they become real crises. If delivery of a supply chain element is still stable and sustainable, it is not yet a major threat, and you can likely mitigate it without great expense and inconvenience.
In the auto industry, for instance, you pay for the tools that a supplier will use to produce certain parts. If you decide to switch suppliers, you need to validate a new supplier and move your tools—but before you can do that, you need a stock of parts to prepare for a pause in production of several weeks or months. You don’t want to wait until your original supplier is coping with financial or workforce trouble to start this process.
3. Take Decisive Action
To manage risks, you must sometimes make bold decisions, such as moving people from one place to another to meet production needs or switching from a small supplier to a large, multinational supplier.
We worked with one client dealing with workforce shortages in Hungary that recruited temporary workers from Asia to meet production demand. This decision came with its own challenges, including language and cultural barriers, a limited timeframe and the need for additional training, but it was still a worthwhile investment for the company.
Today’s risk is often tomorrow’s crisis. If you take stock of the current problems in your business and industry, and start investing in solutions now, you can mitigate risks before they become catastrophes.
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