Risk management tools: Anticipate risks

Shock diagnosis


The COVID-19 breakout widely disrupted global supply chains at the domestic and global levels, magnifying the economic effects of the health crisis. These shocks disrupted demand, supply, and transport and logistics networks. Stresses on supply chains also risk being compounded by counter-productive government actions and policy failures. While scenarios and risk management strategies can reveal the potential shocks expected from a given crisis, it is only when the events occur that the exact nature of the shocks can be assessed. As this assessment is key to the success of policy responses, it is important to identify at an early stage all the resulting shocks in order to determine where policy action is needed.

For example, the weaknesses in supply chains revealed by COVID-19 were related to:

  • Volatility in demand: Some goods, notably medical goods but also ICT goods and services, were subject to unanticipated surges in demand. These were due to COVID-19, but also to shifts in demand resulting from work-from-home policies (e.g. the shift from food consumed away from home to food consumed at home, which led to changes in product choices and packaging requirements). Other goods and services saw declines in demand due to confinement measures or falling incomes (e.g. travel or in-person services, purchases of durable goods).
  • Disruptions in supply: Some goods were undersupplied on the global market (e.g. several unprofitable off-patent medications) and other goods experienced supply disruptions due to COVID-19, exacerbated, in some cases, by concentrated supply.
  • Disruptions in transport and logistics: In some cases, goods were available but could not reach areas where they were needed due to, for example: labour shortages (e.g. at ports, illness, or new social distancing requirements); new transport regulations (e.g. limiting the number of drivers per truck); new border procedures; or transport disruptions (e.g. those affecting air cargo due to the collapse in passenger travel or to the closure of ports). These disruptions were both global and domestic (“last mile”), and in some cases, were exacerbated by specific transport and storage requirements (e.g. products requiring cold chains, such as vaccines).
  • Regulatory failures: The supply of some goods and services were constrained by regulatory procedures and requirements that were not always sufficiently risk-proportionate, agile, or coherent across countries. This resulted in significant delays or supply reductions (e.g. for testing equipment) even when global supply chains were not (or no longer) overloaded. Regulatory barriers also delayed the mobilisation of local resources and production capacity.
  • Disinformation and profiteering: Unfounded rumours, exacerbated by social media, led to panic buying of certain goods ‒ such as hydro alcoholic gels ‒ creating temporary shortages. Lack of clear information led to hoarding, bulk purchases for resale, and price gouging, as well as an uptick in the production of counterfeit goods and the smuggling of illicit goods.
  • Export restrictions: In some cases, notably in the early stages of the COVID-19 pandemic, supply shortages were exacerbated by export restrictions put in place by key suppliers, thereby reducing supplies on global markets. Fear of such restrictions, even when they are not in place, can contribute to hoarding and panic buying.

While risk management strategies can anticipate these kinds of situations, their exact nature and magnitude will depend on the way a crisis develops, underscoring the need for tools that can accurately assess shocks when they first appear.

Policy action

  • Develop monitoring and reporting systems.
  • Early consultation with stakeholders.
  • Develop economic indicators and barometers at the outset of a crisis.
  • Use digital tools in developing policies.

Source: Manuj, I. and J.T. Mentzer. “Global supply risk management”, Journal of Business Logistics, Vol. 29, No.1, 2008.

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