Sunday, December 16, 2012

Do You Have a Supply Chain or a Spiderweb?

This question was recently asked by Zurich's "Risk Engineers" and I think it is a fascinating question.  The metaphor we are all familiar with, the "supply chain" connotes a nice set of interlocking rings, probably made of steel, and that are perfectly aligned.  It brings to mind a very planned and organized way to get from point "a" (raw materials) to point "b" (finished goods) to point "z" (The consumer).  We all know the problems recently experienced from hurricane Sandy however this study clearly indicates the issue is deeper and more broader than just a freak storm.

Reality is, unfortunately, many are spiderwebs.  Not made in any particular order, overlapping and easily disrupted with the swat of a hand.  Zurich believes 2013 is the year companies better take managing, or at least mapping, this web a bit more seriously.  A few key statistics:

  • 73% of respondents to a survey in 2011 reported at least one supply disruption; 50% reported two. 
  • 40% of those who experience extended disruptions eventually go out of business.
  • The leading cause of disruptions is IT or telecommunications. 52% saw some or a high level of disruption from these issues. 
  • One in five companies said they had one instance where they incurred at least $161M in damages
I had an opportunity many years ago to meet with the people of Zurich about this topic in New York City.  At that time it was an "interesting"topic but not much more.  Today, it is critical.  Terrorism, global warming, reliance on sophisticated telecommunications networks, "just in time" (i.e., lack of buffer stocks) and the web of globalization has not only made the likelihood of a disruption more probable but the consequences of it far more severe. 

Their solution is at least to start mapping out your supply chain through tier 2 and rate it based on likelihood of disruption, financial stability and physical stability.  From there I imagine you can create significant contingency plans to at least have a fighting chance at keeping your business running.  

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