The crisis in the Red Sea has plagued the shipping industry since October 2023, with experts concerned that it could extend further into the second half of 2024.

When black swan events like this strike, how can businesses manage supply chain risks?

Many businesses fail to adequately prepare for them, with traditional risk management guidelines often falling short. But in this day and age, and thanks to globalisation, technological advancement and growing geopolitical tensions, black swan events are becoming less improbable.

The risks businesses face include financial losses, damage to infrastructure, decreased demand, material shortages, transport delays, reputational risk, legal challenges and possible regulatory non-compliance.

Businesses across the globe need to know how to manage supply chain risk in the face of this ongoing global volatility and minimise any severe and long-lasting damage.

How can they do this? Through smart procurement strategies.

Firstly, ensuring supplier diversity is a priority in all procurement operations is key to spreading risk. Also known as multi-sourcing, this will help businesses avoid the collapse of their entire supply chain in the face of a black swan event.

End-to-end due diligence is paramount, ensuring that every stage of the supply chain is carried out correctly, efficiently and to the highest standards.

Keeping score of performance metrics to continuously monitor quality, delivery timelines and other key indicators will reduce the risks of delays and substandard products or services.

AI and automated software enhance supply chain resilience because of their ability to efficiently streamline processes, increase visibility and save time, all of which contribute to improvements in risk management and business operations.

Smooth running processes make the incidents of a black swan event more easily managed, especially when all data and communications are stored in a secure, digitalised and centralised system.

Lastly, businesses should thread agility into every business operation, leaving no room for slow decision-making to hamper crisis management. Flexibility, collaboration between divisions and decisive action will inform how rapidly a business can respond to crises, negotiate effectively and ultimately control the outcome in their favour as much as possible.

When a black swan event strikes, it is the businesses that have moved beyond traditional methods of risk management, embraced procurement digitalisation, diversified their supply chains and intertwined flexibility into every process that will better their chances.