Marsh: Western Companies Not Prepared for Asian Supply Risk

While many considered the Wild West an untamed, chaotic place, it was possible to reduce risk simply by carrying a big gun, shooting straight, and developing a good network of informers. In many ways, for Western companies, the economic gold rush that is Asian sourcing today follows in the same path as the rush to capture and take advantage of the great resources of the American West in the last century. But this time around, it's impossible to raise your own private army and the network of informers speaks an entirely differently language (or languages). In other words, for Western companies, reducing supply risk in Asia is a daunting task. Unfortunately, I'm not alone in this thinking. A new study by Marsh & McLennan confirms that most companies are not prepared to deal with the risk Asian sourcing activities introduce. And in fact, they're paying the price for inadequate preparations and risk management today. According to Marsh's VP of Risk Consulting, Matthew Elkington, who is quoted in the article, "The dramatic rise in supply dependencies with Asia, and in particular China, creates significant and diverse risk exposures, several of which are unique to the region in terms of their nature or severity. For example, according to the European commission, 50 percent of product risk notifications arising in the EU in 2005 originated from China."

The study also notes that risks associated with infrastructure, terrorism, natural disaster product, quality, IP, ethical, fraud, corruption, and pandemic disease (e.g., bird flu) should all factor into company equations when thinking about the risk potential Asian supply chain activities can introduce. Here at Spend Matters, supply risk is a topic that I believe needs to both reach and stay in the headlines. I will keep tackling it here as often as possible, but to get your daily dose on the matter, I strongly recommend you check out Risk Ape, a blog devoted entirely to the subject. I believe that in the coming years, Spend Management practitioners will be equally focused on the intersection of cost reduction / cost management and risk mitigation / reduction. Those who only focus on the former will be left with no silver bullets left in the six shooter when they most need to take action the most.

Jason Busch

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