By David Berrey, chief compliance officer
Our complex global economy is fraught with uncertainty. Companies today must contend with numerous factors beyond their control that jeopardize their ability to conduct business as usual.
The past few years have brought new levels of volatility to an already unpredictable operating environment. Here, I will explore a few of the complicated challenges organizations are facing and outline preemptive steps they can take to facilitate business continuity when the unexpected strikes.
Labor shortages and supply chain disruptions
COVID has deeply impacted many sectors of the workforce. The onset of the pandemic sent many workers home from the office, and a significant number don’t want to go back. People are reconsidering their career paths and weighing their priorities. In addition to the Great Resignation and shuffling of talent, some older (and more skilled/experienced) workers are opting to retire to protect themselves from COVID and other workplace health threats in a phenomenon dubbed the “Great Retirement.”
Many businesses had to lay off workers during pandemic-era shutdowns, but now that the economy has opened once again, they are struggling to find people with the right skills to hire. Employers are tapping underutilized talent sources, such as those in remote locations, military veterans, retirees/older workers and those with disabilities or limitations that can be reasonably accommodated. Stiff competition for a limited talent pool, coupled with inflationary pressures and the cost-of-living crisis, has led to demand for higher wages.
On the topic of inflation, rising mortgages, loans, utility bills and other expenses have made job stability more questionable. As we’ve seen recently in the technology sector, employers are conducting layoffs and developing internal efficiencies in support of their own battles against inflation. As such, employees may be less willing to switch to other organizations or industries, opting instead to remain with their current employers.
These and other shifts in the workforce have led to labor shortages in key sectors, such as manufacturing and shipping. Staffing issues directly affect the volume of goods in supply and the time it takes for distributors and consumers to receive those goods. In the shipping sector, trucking is a particular pain point; older truck drivers are retiring, and younger drivers, having seen the benefits of flexible work during COVID, are less willing to commit to being away from their families for extended periods.
Challenges in trucking have a trickle-down effect on manufacturers, who rely on shipping companies to haul raw materials. Slowdowns in shipping mean delays in manufacturing and the transport of finished products. The supply chain may be further hampered by deglobalization, with some regions opting to meet the demands of their local markets before shipping abroad.
The Russian invasion of Ukraine has led to a great deal of focus on economic sanctions, especially among global corporations. Some of these sanctions are issued by world governments, while others are “self-imposed” by organizations seeking to distance themselves from the conflict and its repercussions. Either way, sanctions can significantly restrict international trade. Organizations must examine if and how they do business in regions affected by sanctions — and even whether funds with which they’re associated may pass through banks that could become or are already sanctioned.
The Russia-Ukraine conflict has also affected the supply chain. As my colleagues shared on the blog, that area of the world typically provides raw materials to the global auto industry and produces car parts, such as wire harnesses, that are essential to the manufacturing process. This has contributed to the rising cost of auto claims. It’s just one example of the far-reaching impact that geopolitical tensions in one region can have on our interconnected global economy.
Mitigating and managing risk
When out-of-the-ordinary events threaten to interrupt the normal flow of business, organizations must take stock of the things they can control. Better yet, they should establish business continuity processes long before interruptions occur.
As outlined in the well-established principles of risk management, the first step is risk identification. In anticipation of disruptions that may arise, organizations should identify their critical suppliers and undertake robust due diligence on each one. It’s important to know and document how long they’ve been operating, where they’re located, their business focus, what they prioritize in the event of supply disruptions and their business continuity capabilities.
Further, international businesses should have robust tools for monitoring sanctions, as well as a thorough understanding of how sanctions in various regions might affect operations. Keeping an eye on negative media coverage of key suppliers and their market sectors also supports risk identification and mitigation.
When adverse conditions transition from potential to actual threats, it’s time to activate business continuity plans. Efforts to manage the risks presented by situational challenges may include dual sourcing of materials and services to ensure availability, conducting regular reviews with critical suppliers to promote mutual understanding, and shifting away from business pursuits and partnerships that don’t align with your organizational ethics, values and regulatory guidelines.
I echo my colleagues’ astute observation in our digital magazine edge that the best way to manage unpredictability and the risks of tomorrow is to develop and invest in long-term partnerships today. Strong relationships with culturally compatible partners always prove invaluable in weathering storms of uncertainty.
> Learn more — read about our solutions that support service continuity and getting back to business, including business interruption claims management, counter-fraud programs, forensic accounting services and property claims solutions