The World Economic Forum’s survey report in 2023 revealed that more than half of respondents (54%) anticipated instability and risks of global crises in 2024, with geopolitical events driving at the front seat. 

The events including trade wars, political events (elections), regional conflicts, etc are quite the concerns. These growing threats are directly or indirectly impacting businesses’ supply chains leading to delays, disruptions, increased costs, and material shortages. To navigate these complexities, businesses should stay informed about geopolitical risks and develop strong procurement strategies to mitigate them and maintain supply chain resilience.  

Today, we’ll explore geopolitical risks and their impact on the global supply chain of businesses.  Additionally, we’ll share the current geopolitical crises of 2024 and their effect on businesses operating globally and also suggest some strategies to mitigate these risks and ensure business continuity in an increasingly evolving world. 

So, let’s get started! 

What are Geopolitical Events & Uncertainties? 

Simply put, Geopolitical events and uncertainties are unpredictable risks arising from disruption caused by uneven political or diplomatic relations between nations. These risks can take any form, including political instability, military conflicts, international wars, terrorist threats, economic crises, geographical events, and climate risks.  

These risks can directly or indirectly affect the global economy and businesses. The direct impacts are surging prices, increased uncertainties, financial transaction issues, capital control, and higher transportation risk. The indirect effects include disrupted trade flow, shortage of resources, higher inflation, and risks in the supply chain. Typically, geopolitical risk occurs when a major conflict, a shift in power, or a national crisis happens from a nation’s involvement in international matters.  

For example, U.S. elections will have a significant impact on all the global economies. The U.S. is one the most powerful nations and with its elections comes several uncertainties and potential risks as new powers and agendas might overtake. 

These risks equally impact both the nation itself and the global community around the world. Unlike other types of risks, geopolitical risks are quite difficult to predict and come as an unexpected shock and they might escalate or create massive challenges for businesses.  

Currently, globalization has become a major contributor to fueling these risks as businesses across the globe are increasingly interconnecting different economies by exchanging goods and services. Now, the major focus of businesses operating worldwide is to understand how these risks are affecting their supply chain system. And come up with new procurement strategies to help build resilience, adapt to modern marketing challenges, and prepare for unforeseen risks. 

How do Geopolitical Risks Affect the Global Supply Chain?  

Geopolitical risks are indeed a game-changer for businesses; they can disrupt a business’s healthy supply chain in a fraction of the time. As companies increasingly shift to the international level to source materials, manufacture products, and distribute goods, the impact of geopolitical events has become more critical. Below is an analysis of how these risks can affect the supply chain: 

1. Disruption of the supply chain  

In various situations, geopolitical risks can disrupt the complete supply chain system. For instance, a war outbreak can put manufacturing plants, transportation systems, and communication mediums on hold. Such disruption can cause a global level of supply shortage and a halt of production, resulting in significant financial losses.

2. Delay in delivery 

When geopolitical tensions, such as trade wars, labor strikes, or regional conflicts emerge, it can lead to delayed delivery times. In case of political instability in regions with manufacturing and shipping setups, transportation routes may be disrupted and ports might be closed. These kinds of situations can lead to delays in the delivery, affecting scheduled deliveries, and unfulfilled customer demands. 

3. Increased transportation cost 

The emergence of a geopolitical crisis can lead to a rise in transportation costs. For example, situations like the imposition of tariffs, rerouting transportation to avoid conflict zones, or increasing security measures can inflate the cost of transportation moving goods across borders. Additionally, finding alternative routes or transportation to avoid risky regions might drive up expenditure, overall impacting the supply chain budget and profitability of businesses. 

4. Shortage of materials 

Geopolitical events can disturb the supply of raw materials, resulting in a shortage of materials. Let’s understand it with an example, there’s conflict in a region rich in essential minerals and due to this, the local government has limited access to these materials. During such conflicts, material shortage can lead to a delay in production, forcing companies to seek resources from other suppliers, which may not stand out in quantity or quality requirements. This can ultimately disrupt the production process.  

5. Fluctuation in currency value 

Geopolitical instability and events can lead to fluctuations in currency values, creating financial uncertainty. Businesses operating globally can encounter currency unpredictability, affecting the cost of imports and exports, and resulting in uncertain pricing and profit margins. For instance, a sudden devaluation of a supplier’s national currency could reduce costs or might signal economic instability, leading to a reevaluation of business relationships.6.

6. Changes in trade policies 

Sudden changes in the trade policy including imposition of tariffs and import/export restrictions can occur during geopolitical tensions. These policy shifts can create barriers for businesses to trade, forcing companies to quickly adapt or face the risk of losing their market. Such unpredictable trade policy changes can make long-term planning difficult for businesses.

7. Shift in supply-demand 

Geopolitical risks can impact the balance of supply and demand in the global markets. For instance, a conflict in a major oil-producing region can reduce the supply of oil, driving up its prices, and impacting industries depending on fuel. Similarly, sanctions on a specific country can lower the supply of goods from that nation, while increasing the demand for fuel in other regions. This shift in supply-demand can lead to price hikes and supply chain disruptions. 

Some recent geopolitical events impacted the Supply Chain  

The rising tension and geopolitical events between countries can impact the global supply chain. Here are two such geopolitical crises from 2024 that might affect several businesses’ supply chains: 

The Red Sea Crises 

Image source: U.S. Energy Information Administration  

Yemen Houthi group has attacked cargo ships in Bab al Mandbeb Strait from the southern side of the Red Sea. This launch has caused many global shipping and oil companies like Maersk and British Petroleum to halt their transportation in that area and suspend shipments. 

Hence, ships of these companies are avoiding their route from Europe to Asia, especially Egypt’s Suez Canal. This canal was considered the maritime route connecting Europe and Asia, accounting for 12% of the world’s shipping traffic. This crisis is directly causing shipments to travel longer routes, adding cost to transport, and increasing oil prices.  

The U.S.-China Tension 

The rising U.S.-China trade tension will continue to impact the global supply chain. The US has imposed export restrictions on China, particularly in the tech sector due to intellectual property concerns. This intensified trade tension between both nations.  As a result, the trade of Liquified Natural Gas (LNG) between them is fueling a spark in their relations as China is a major importer of US LNG.  

Now in response, China has imposed its own export restrictions on gallium, germanium, and other metals which has caused an increase in commodity prices, further complicating the entire global supply chain economy.  

Procurement Strategies to Mitigate Risks in the Supply Chain 

Businesses in order to mitigate risks should implement strong procurement strategies, catering to their specific needs. Following are some of the strategies that can help businesses save from impromptu geopolitical crises: 

1. Digital supply chain 

Digital supply chain helps in predicting geopolitical risks by using tools and tech to analyze data, identify patterns, and predict potential disruptions. These technologies include Artificial Intelligence, the Internet of Things, Predictive Analytics, and Blockchain to monitor supply chain operations, enabling companies to detect and spot potential risks early and manage them in real time.  

2. Consider nearshore or reshore strategy 

Businesses should consider adopting a nearshore or reshore strategy to mitigate risks associated with long-distance shipping. This ensures reduced risks or disruptions related to long-distance shipping and shortened delivery times.  

3. Smart Inventory Management 

Adopt a lean inventory management strategy, like just-in-time (JIT) management, to avoid overstocking. Similarly keep stocks of essential items as a backup to protect against shortages. 

4. Work with multiple suppliers 

Instead of relying on just one supplier for importing materials or commodities, work with multiple suppliers. It will help businesses reduce risks of geopolitical instability and ensure backup options. 

5. Build Strong Supplier Relationships 

Invest in long-term relationships with the suppliers. This will improve their ability to manage risks, deliver on time, and boost their overall performance and reliability. 

In a Nutshell  

Geopolitical risks and events have the potential to impact the supply chain operations of businesses globally. To reduce the impact of these risks, businesses should follow comprehensive approaches and strategies. The strategies enable them to identify potential disruptions, mitigate the risks, build durability, and align with global market changes. 

Apart from integrating mitigation strategies, companies can boost their supply chain operations by leveraging modern tools and techs. Additionally, by developing emergency backup plans, enterprises can facilitate long-term relationships.  

Is your Supply Chain ready to mitigate the Geopolitical Risks? 

If not, Moglix can help you mitigate disruptions and ensure business continuity. Our Supply Chain Risk Management Solutions understand the crucial importance of managing supply chain risks for the seamless operations of your business. Our solutions can empower you to identify, assess, and navigate potential risks, ensuring continuity and durability worldwide. 

This powerful statement was made a decade ago, yet remains as true for businesses today as it did then. With the world witnessing climate change, economic crises, and social inequalities, the urgency of adopting sustainable practices has never been more relevant. A sustainable business doesn’t just benefit the planet, people, and profit; it also plays a crucial role in addressing these global challenges. 

Amidst these challenges, sustainable procurement has emerged as both a corporate responsibility and a strategic necessity. It’s not just about meeting businesses’ rising concerns and demands but also about contributing to a safer, more environmentally friendly future. 

Sustainable procurement incorporates Environmental, Social, and Governance (ESG) principles into the procurement, purchasing, and supplier selection process. It should deliver value for money while minimizing its environmental, social, and economic impact. 

According to one study conducted by Maseno University, Kenya states that selecting suppliers based on sustainable (ESG) criteria can increase procurement performance by a staggering 76.4%. This statistic highlights the significant advantages that businesses can gain by adopting sustainable procurement practices. 

Going beyond the traditional focus on price and quality, sustainable procurement aims to reduce negative environmental impacts, support social growth, and facilitate ethical governance practices throughout the supply chain. 

Today, what businesses are facing is massive pressure from investors, consumers, and regular bodies to act responsibly and ensure sustainability in the long run. So, to suppress this pressure, we’ll delve into the benefits of sustainable procurement, explore the role of ESG criteria in supplier selection, and provide practical steps for integrating these ESG factors to build sustainable supply chains. 

Benefits of Sustainable Procurement 

As per McKinsey’s research, ESG criteria can lower business costs by 5-10%, focusing on waste reduction and operational efficiency. Sustainable procurement offers multiple benefits that impact businesses’ social, environmental, and governance state. A few benefits are listed below: 

• It reduces supply chain risk by ensuring suppliers adhere to standard ESG practices. 

• Lowers the operational cost by implementing energy-efficient processes, leading to long-term savings. 

• Incorporating sustainable, transparent, and ethical practices enables businesses to strengthen their reputation and gain a competitive edge. 

• It ensures that businesses remain compliant with industry standards and regulations. 

• It facilitates stronger and more collaborative relationships with the suppliers. 

Role of ESG Criteria in Sustainable Procurement 

ESG in procurement implies that procurement teams must look beyond cost and quality by considering environmental and social criteria in the purchasing processes and decisions. An ESG-based approach can enable businesses to meet their financial and sustainability goals. Let’s understand the ESG criteria and their role in gaining sustainability in procurement. 

• Environmental Criteria- The Environmental criteria deal with challenges like carbon emissions and footprint, climate change, deforestation, and pollution. ESG in sustainable procurement helps businesses reduce environmental impact, carbon footprint, and energy consumption. 

• Social Criteria- The Social aspect focuses on health and safety, diversity, human rights, equality, and community impact. ESG-oriented sustainable procurement may require an upfront investment, but it leads to massive long-term savings. It also improves supplier relations and builds collaborative and sustainable relationships. 

• Governance Criteria- The Governance criteria deal with internal business practices, procedures, and controls, including auditing and accounting, corruption, and bribery. ESG in sustainable procurement helps businesses comply with diverse regulations and safety standards and sell directly or indirectly to local government organizations.

Following these criteria can help businesses assess their sustainability efforts and impact. Furthermore, it aligns business functions with global sustainability and promotes long-term stability and success. 
At Moglix, we’re actively integrating ESG principles into our procurement solutions, especially in the areas of green energy and custom fabrication. We’re driving the adoption of sustainable energy sources for businesses, reducing dependency on fossil fuels, and aligning with net-zero goals by promoting biomass briquettes and solar energy as sustainable fuel alternatives. 

How ESG Criteria Help in Supplier Selection 

• The Environmental criteria ensure that businesses collaborate or purchase from those suppliers who fulfill all their environmental responsibilities. These responsibilities include efforts to minimize carbon emissions, manage resources and services efficiently, prevent pollution, and contribute to biodiversity. Businesses prioritizing this criteria in procurement decisions and supplier selection are better equipped to reduce pollution, save the environment, and protect the planet. 

• The Social criteria will assess a supplier’s impact on people and communities. It includes determining labor practices, human rights adherence, community engagement, and his efforts to promote diversity. This means selecting suppliers who treat their employees well and contribute to the health & well-being of local communities. By integrating this criterion into procurement decisions, businesses can avoid risks associated with unethical practices and improve their brand image as a sustainable organization.

• The Governance factor includes evaluating the supplier’s transparency, accountability, and ethical standards. Businesses should assess how suppliers manage corruption risks, ensure compliance with regulations, and follow ethical business practices. Strong governance in the supply chain ensures that suppliers work with integrity, transparency, and ethics. By choosing suppliers who consider governance frameworks, businesses can keep up with the ethical standards throughout the supply chain. 

Here at Moglix, we work with suppliers adhering to sustainable procurement practices by sourcing eco-friendly materials such as biomass briquettes made from agricultural waste. This practice contributes to a circular economy and reduces environmental waste. We ensure that our suppliers follow a Quality Adherence Procedure (QAP) and Quality & Cost-Based Selection (QCBS) framework, aligning with sustainability and ESG goals. 

How Businesses can Integrate ESG Criteria to build Sustainable Supply Chain 

Today, businesses are rapidly integrating ESG factors into their supply chain to foster sustainability and achieve long-term success. Below are some ways businesses can use to integrate ESG into their supply chain process: 

• Choose suppliers prioritizing environmental sustainability by using renewable resources, minimizing resource consumption, and practicing efficient waste management. 

• Optimize routes to reduce carbon emissions, decrease fuel consumption, and consider shifting to electric or hybrid vehicles for delivery.  

• Consider sourcing raw materials that are renewable, recyclable, and biodegradable. This will help reduce environmental impact and ensure that materials used in the production have minimal harm to nature. 

• Businesses should develop a clear and fair code of conduct that outlines ESG expectations from suppliers. This should include regulations to be followed, guidelines on ethical behavior, environmental practices, and social responsibilities. 

• Conduct regular audits and assessments of suppliers to ensure they follow ESG criteria. Leverage third-party auditors to cross-check to ensure transparency.  

• Integrate tech and tools like blockchain to navigate the origin of materials and monitor the workflow within the supply chain. This will ensure compliance with ESG standards and build trust with consumers and stakeholders by offering transparency. 

• Collaborate with suppliers to develop innovative solutions that reduce environmental impact like new production techniques and waste reduction methods. 

• Organize training and educational programs for suppliers to help them learn ways to implement ESG practices in their business. Companies like Mars and Unilever are helping suppliers increase resilience to situations like drought and humidity. 

• ESG integration is an ongoing process. Therefore, continuously refining and assessing the supply chain practices and adapting to new challenges & opportunities can lead to sustainable outcomes. This will help businesses remain sustainable and align with global ESG trends. 

By integrating ESG criteria into the supply chain, businesses can contribute to a more sustainable and environmentally friendly world. This will help enhance their reputation, resilience, and long-term profitability. 

For instance, at Moglix, we use cloud-based SaaS systems for managing procurement logistics, order tracking, and supplier performance, ensuring transparency and compliance with ESG standards. Our real-time tracking and digital monitoring tools aid in reducing carbon emissions, optimizing transportation, and enabling the efficient sourcing of sustainable materials. 

Conclusion 

Integrating ESG criteria into the supply chain has become crucial for businesses to build sustainable, environmentally friendly, and resilient businesses worldwide.  

Interesting Fact: Globally, 60% of consumers consider sustainability an essential purchase criterion. 

Businesses can accelerate change, drive growth, and gain long-term success by prioritizing environmental sustainability, social responsibility, and robust governance. Selecting suppliers who align with these commitments can help businesses build strong relationships with suppliers and stakeholders. 

How can Moglix help you integrate ESG into the Supply Chain? 

Our sustainable procurement solutions can help your business improve social and environmental impact. We aim to build a sustainable supply chain through sustainable sourcing, operations, and management. Contact us today. Let’s take your business to sustainable growth.