Having access to the latest, accurate data is central to success in supply chain risk mitigation. Only then can risk managers begin to understand the bewildering array of threats to the global supply chain;
Our globalised business networks bring huge opportunities – both economical and societal. But these benefits may only be garnered if these networks or supply chains are effectively managed.
The risks to supply chain continuity are numerous and varied – from working conditions to natural disaster and political unrest, and keeping abreast of the changing dynamics within these often complex and multi-tiered supply networks is a difficult but essential task. The risks themselves, and our ability to deal with them vary widely throughout the world, making the task of managing country specific risk yet more challenging. It is hardly surprising that supply chain disruption regularly tops the list of concerns for businesses today.
Analysing the various risks individually, and tailoring risk strategy accordingly helps organisations to understand the impact of business decisions and investments. To help with this task, FM Global compiles an annual Resilience Index, charting the vulnerability of 130 countries to supply chain disruption and their ability to recover from it.
In its latest Index, Norway is ranked as the country best suited for companies seeking to avoid disruptions in their global supply chain operations. Venezuela ranked last. For the third year running, the UK has held on to its rank of 20. Its ranking reflects its resistance to oil shocks as its consumption of oil relative to GDP is comparatively low. The Index scores the UK positively on other key drivers such as perceptions of its control of corruption and the quality of local suppliers, but, it points to scope for improvement in risk quality, particularly in fire risk management. The risk of terrorism also continues to threaten supply chain security.
Obtaining country-level intelligence is among the recommendations put forward by business standards company, the British Standards Institution, in its top tips for business continuity planning.
BSI’s own research suggests that more than three quarters of manufacturing firms for instance, cite increasing supply chain complexity as the fastest growing risk to continuity. The proportion of supply chains exposed to elevated, high or severe risk of natural disaster is highest for the apparel, automotive and aerospace sectors, all of which have a high proportion of manufacturing and raw material sourcing based in politically and geologically unstable regions.
Courtney Foster, supply chain solutions manager at BSI said: “Recent global incidents have thrown the risk of supply chain disruption into the spotlight. Our data shows an alarming percentage of suppliers in a variety of the industries are based in areas with significant risk of natural disaster or man-made disruption.
“Our experience shows that while companies are aware of and test for internal risks, they are failing to map or assess risk effectively across their supply chain. More often than not, only the first tier of suppliers is considered with no thought given to those further down the supply chain. Testing and assessing every supplier across every tier is prohibitively time consuming for businesses. By concentrating on higher risk suppliers, companies can be more effective and confident in mitigating risks.”
Establishing and maintaining standards for dealing with supply chain risk will help underpin successful mitigation. As part of this, understanding and tracking past incidents with suppliers is among the recommendations put forward by BSI. To assess and understand vulnerabilities and weak points, the standards organisation recommend that organisations carry out risk assessments to assess supplier capabilities, so that they adhere to specific business continuity plans and requirements.
Agreeing and documenting plans with supplier – particularly critical ones – forms a necessary part of this. Their business continuity plans must fit with clear objectives and should be defined by a contract. BSI stresses this is particularly important for small businesses or those working with new suppliers. Where possible, including suppliers in exercises and testing will strengthen response capabilities throughout the chain, and should include as wide a range of scenarios as appropriate.
And, while lean supply chains may seem like the sensible economic choice, their disruption can have often far-reaching consequences.