Risk management puts companies ahead in turbulent times

Companies with early warnings of natural disasters, trade barriers or other risks can stockpile extra supplies or reserve production capacity before competitors do. This is evident from examples shared by Everstream, Prewave and Sphera during Webinar Wednesday. The three specialists explain what supply chain risk management is and what it can do for companies. ‘If your factory is one metre under water, it will be out of operation for a considerable time.’

By Marcel te Lindert

Just how important risk management is, was demonstrated with the outbreak of war in Ukraine. A few months before the first explosion sounded, Ukraine was already asking the United States and Germany to focus on natural gas imports in sanctions against Russia. ‘These are examples of early warning signals that we need to inform our customers about, so that they can take action before calamity actually happens,’ says Adam Lee, senior director of sales at Sphera.

Chance of flooding

Sphera has been active in supply chain risk management since its acquisition of Riskmethods in 2022, as have Everstream and Prewave. All three companies provide software that helps companies get a grip on risks that threaten business continuity. But even more important than that software is the daily analysis of billions of data needed to identify those risks early. ‘That determines whether companies actually succeed in reducing risks,’ argues David Shillingford, co-founder of Everstream. ‘Particularly in the areas of extreme weather and climate change, we have a wealth of data.’

As an example, Shillingford shows a graph from the Risk Report 2025, which shows that flooding is most likely to occur in the United States. ‘Some factors do not change, such as the topography of the location. Other factors change minimally, such as the absorptive capacity of the earth’s surface. By far the biggest change involves climate, which warms the earth. Warmer air can contain more moisture, so more precipitation falls during a storm. We have seen this especially around the Gulf of Mexico in recent years. The impact of a flood is quite significant. If your factory is one metre under water, it will be out of operation for quite a while.’

Supply chain mapping

Besides geopolitical conflicts and floods, there are more risks that can affect businesses. Consider the supply of agricultural commodities, which can also be under considerable pressure from extreme weather events and climate change. ‘Or take rare earths, which are increasingly a source of geopolitical conflict. Every country is trying to secure access to those earth metals,’ Shillingford explains. Lee mentions the financial risks faced by suppliers. ‘Our own risk report shows that the financial health of suppliers continues to decline.’

What risk management is all about is the ability to link a location, commodity or transport link to a risk. To do this, it is first necessary to meticulously map the supply chain. Shilingford: ‘Not only the Tier 1 suppliers need to be mapped for this, but also the Tier 2, Tier 3 and Tier 4 suppliers. This shows where in the supply chain there is a high concentration of risk. This is the case, for example, if several Tier 1 suppliers turn out to be dependent on the same Tier 2 supplier.’

Artificial intelligence

According to Prewave, risk management increasingly requires ‘superintelligence’. ‘The more complex the supply chain, the greater the need for artificial intelligence (AI). If there is a supply chain with Tier 2, Tier 3 and Tier 4 suppliers, the complexity increases exponentially. Then you no longer manage with Excel, but need an intelligent solution,’ states Jonas Artmeyer, vice president advisory at Prewave.

He points to companies’ desire to comply with laws and regulations, such as the new Corporate Sustainability Due Dilligence Directive (CSDDD) under discussion in the European Union. The CSDDD holds European companies responsible for, for example, environmental problems or working conditions upstream in their supply chain. ‘So companies have to monitor their supply chain. The question is how efficiently they do that. You can have suppliers fill in questionnaires, but that takes a wealth of time. We try to automate that process.’

Shorter reaction time

Compliance with laws and regulations Artmeyer designates level 1. Level 2 is about access to information on sustainability or natural disaster risks, so that companies can respond accordingly. ‘What companies want is level 3: a shorter response time. Our customers want insight into risks earlier than their competitors, so they can buy additional raw materials or reserve production capacity from suppliers two days ahead of them. If we pick up an alert signal somewhere, we can inform our customers about it within 10 minutes.’

Level 4 is about a proactive approach. The moment a buyer is negotiating with a supplier, he wants to be able to assess the risks associated with that supplier. ‘On the basis of the Bill of Materials, among other things, we can estimate the impact of that supplier on sales,’ Artmeyer explains. ‘The fifth and highest level is mainly about analysing scenarios. When war broke out in Ukraine, we immediately showed our customers which suppliers were there and which materials they were importing from Russia, so they could take measures. We are doing the same now with the trade tariffs imposed by Donald Trump. We show which Tier 1 and Tier 2 suppliers import a lot from Mexico, Canada or China and therefore pose additional risk.’

Language of the CFO

What many companies struggle with is calculating the payback period of a supply chain risk management solution. Sphera shows the business case of an automotive supplier. It decided to invest in risk management after an Italian rubber parts supplier unexpectedly failed to deliver. The supplier had to switch to a Japanese supplier, leading to a huge increase in air freight costs. ‘There are five ways in which the investment can be recouped: increasing efficiency, avoiding costs, saving costs, maintaining turnover and preserving shareholder value,’ Lee explains.

By deploying the Sphera solution, the company in question managed to cut air freight costs by 35%, reduce response time by 90% and avoid price increases of up to 16%. ‘In addition, the company managed to reduce security inventory by 26 million euros a year and limit revenue loss to 9%. Finally, it managed to avoid a 2.5% fall in the value of its shares,’ Lee said. ‘As a supply chain professional, it is important to speak the language of the CFO. We can help them do that.’