Strengthening Southeast Asia’s supply chains: The role of value at risk
5 May 20257 min read
Summary
- Global supply chains are increasingly vulnerable to disruptions from tariffs, protectionist policies, asymmetrical retaliation, natural disasters, and climate-related events, particularly in regions like Southeast Asia.
- Value at Risk (VaR) is used to quantify the financial exposure from supply chain disruptions by estimating potential revenue loss tied to specific risks such as input price volatility, facility shutdowns, or route disruptions.
- VaR supports scenario-based planning for events like trade wars, natural disasters, and geopolitical instability, guiding mitigation strategies like inventory buffering, supplier relocation, or infrastructure investment.
- To operationalize VaR, companies must identify critical suppliers, link them to revenue streams, apply reliable risk scores, and leverage AI and predictive analytics to automate and scale continuous risk monitoring and resilience planning.
Supply chain management faces unprecedented challenges in today's interconnected global economy. Tariffs are one prevailing issue. Rising protectionism and the imposition of tariffs and counter-tariffs – along with explicit and understated promises of asymmetrical retaliation as well as government sanctions – have the potential to disrupt supply chains.Of course, supply chain disruptions are not new. The COVID-19 pandemic exposed the fragility of global supply chains, causing seismic disruptions, production delays and soaring demand for certain products. As businesses scrambled to mitigate these risks, the immediate steps taken were often chaotic and costly. This chaos compelled supply chain leaders to rethink and rebuild their approach to risk management in search of greater resilience and cost-effectiveness. How do organizations proactively manage supply chain risks in an increasingly volatile world characterized by geopolitical tensions, natural disasters and climate change? Proactive supply chain risk management can be less costly than reactive approaches – but what steps can organizations take?
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