Risk Expert Gary Lynch on Harvey, Irma and Supply Chain Risk and Resilience (Part 1)

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Editor’s note: This is Part 1 in a two-part Q&A.

Hurricanes Harvey and Irma have come and gone, leaving devastation in their wake and — what’s that? More hurricanes on the way?

At the time of writing, tropical storm Jose is expected to become a hurricane and make its way towards the northeastern U.S. As the Washington Post reported, we’ve had six hurricanes so far this year, and going by the metric of total cyclone energy, we’ve already well surpassed the average full Atlantic hurricane season.

Instead of looking at Irma specifically like we did for Harvey, we decided to take a broader look at supply chain risk. To that end, we talked to Gary Lynch, who, according to our chief research officer Pierre Mitchell, is “the best supply risk guru in the world.”

Spend Matters: Can you tell us a little bit about your background?

Gary Lynch: I own a company called The Risk Project. We help organizations with their strategic direction, [trying] to turn risk into value, growth and profitability as opposed to just [being a] defensive mechanism.

I've been in the industry for a number of years. I just launched a risk service at the Gartner Group, and on the industry side, I've spent a great deal of time in the earlier days of being a chief security officer and information security officer for Chase Manhattan Bank and Prudential.

SM: So we’ve had two big hurricanes, one right after the other. What are companies saying?

GL: It has been uncomfortably quiet. Companies are not really sure right now what the downstream effects are going to be. They're not even sure in some cases as it relates to Harvey. From an economic standpoint, [Harvey is] the one that I'm more concerned about because of the materials side of it. The companies that I deal with rely on those materials, especially the plastics and chemicals.

We're still in the process of drawing off existing inventories and assessing how long capacity will be down for. Like most of these big events, especially when it hits the production side of the business, it really takes weeks to figure out how much impact there is going to be to [different] industries, what there's going to be a shortage of [and] what people are going to have to pay premium for. So the noise has been very limited right now, but I suspect within the next month or two, you [will] really start to see the [effects] unfold.

SM: There’s been a lot of attention, deservedly, given to Harvey and Irma. What risks are lurking out there that perhaps don’t receive enough attention?

GL: The cyber risk issue has taken center stage. That’s still of concern, but this business of risk is very event driven. [There are] some geopolitical risks [that] I think are lurking and are going to have a pretty dramatic effect, especially from an economic standpoint. There needs to be attention shifted back to that. In order to do that, you have to understand where your supply chains extend to and how they're going to change over the next two years through technology and automation.

I think the most important thing is to look at [risk] in the context of the industry. Take [as an example] medical device providers and the pressure on pricing — especially in the healthcare market, where you have tremendous industry pressure for more value-oriented solutions. It requires these organizations to really differentiate the contribution that their product or service is making. To me, those are even bigger risks than the next hurricane or the next supplier disruption.

SM: What can we do to make our supply chains more resilient?

GL: [We now have] products that give you an opportunity to understand when an event occurs almost in real time, the impacts of the event, the extent of the event [and] the interdependencies, meaning who's going to be affected, quantifying that in economic terms.

You're seeing some of the tools start to provide some real value in the context of understanding the risks, quantifying it and making sure the balance between your investment in maintaining the performance or the cost of the organization and the investment and risk are well balanced. I think we've seen some very dramatic improvements in the last three years in that space.

The other side of it though … when you look at risk and you look at uncertainty, you can see some opportunity. So the more I know about my risk, in many cases, the better positioned I am to take advantage of the opportunity in the market.

This interview has been edited and condensed.

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