“Man-Made” Risks – New Briefing Paper Covers This Varied Supply Chain Risk Category

Our previous supply chain risk briefing paper covered natural disasters, but now the fourth in our series, available for free download here, and sponsored by risk management solution provider riskmethods,  moves onto “man-made” events. It's titled "Man-Made" Risk - Different Risks Require Thoughtful Strategies.

The sort of risk events we talk about here can often have quite similar negative outcomes for businesses and their customers as those arising from natural events.  Indeed, there is arguably an intersection area between these two risk categories. For instance, a factory fire might be defined as a “natural” event if it was caused by lightning, or “man-made” if a carelessly discarded cigarette but was to blame. If it wipes out a key supplier though, the impact on the buyer is the same.

In other cases, the human causes behind risk events are all too obvious. As well as fire, factory explosions are more common than we might imagine, and clearly can have terrible consequences. Another set of issues arise through strikes and labour disputes; whilst they are much less common in the UK than when I started my business career, many buyers will have had experience of supply interruptions because of such events. Even a supplier simply changing their business strategy or perhaps opening a new production plant can have risk consequences for their customers.

In our short paper, we run through these issues and talk briefly about some of the possible consequences. And it is easy to see from that run-through of the type of issues we’re discussing that they are by nature difficult to predict or indeed avoid. A buyer cannot do much to reduce the probability of strikes – or fire – in their supply chain. (That includes shipping and logistics providers of course as well as providers of goods).

Insurance is an obvious risk mitigation strategy, but the most important element of the risk approach here is around how buyers respond to events, in terms of speed and effectiveness of response. Often, suppliers aren’t too keen to tell their customers anything untoward has happened, so finding out about the risk event is vital. We use this example in the paper;

“A  major automotive firm in the US was alerted by the riskmethods supply chain risk management tool (not by their supplier) that there was a risk of over 200 production sites being compulsorily shut down for 2 weeks in the area around Hangzhou in order to reduce air pollution during the August 2016 G20 summit. This customer increased their ordering volumes appropriately to have enough component stockholding during this period”.

That’s an interesting case study – and again, we might suggest air pollution is the coming together of natural (weather conditions) and man-made causes (factory discharges). But the decisions then to close factories was clearly “man-made” and political!  However, the key point is not really what caused this; it is that customers of those factories first learnt of the problem from the risk tool, not the supplier.

Managing risk well and even gaining competitive advantage comes from having information as soon as possible, and responding quickly. Often in these situations, the buyer will need to either increase orders or find new suppliers – the aim is to be able to do that before your competition are in the market with the same goals.

So do download and read our short paper now – the previous three in the series are still available too in our library.

 

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