Natural Disasters – How to Mitigate Unavoidable Risks

The third of our Supply Chain Risk briefings, written in conjunction with solution providers  riskmethods, is simply titled “Natural Disasters - How to Mitigate Unavoidable Risks”.  It suggests how procurement and supply chain professionals should act to understand, mitigate and manage the risk around floods, hurricanes and the like that could affect their suppliers’ activities.

When I switched on the BBC breakfast news at 7am last Friday, I was greeted with scenes of tourists in Kos, Greece running from bars as an earthquake struck the region. Bodrum in Turkey saw damage as well.

A strong earthquake in the Aegean Sea has killed at least two people on the Greek island of Kos, officials say. The 6.7-magnitude quake hit 12km (seven miles) north-east of Kos, near the Turkish coast, with a depth of 10km, the US Geological Survey said. At least 100 others were also injured at the popular tourist destination. Some buildings were damaged”.

Now this area is not exactly a centre of industry and manufacturing. But as well as feeling concern for those affected, of course, it also reminded me that by the very nature of these events, they are hard to predict. I certainly didn’t know that Kos was susceptible to earthquakes. So the first stage for supply chain risk management in this area conncetd with "natural disasters" is to understand your risk profile. Here is an excerpt from our paper that briefly looks at that issue.

“Suggested Actions and Mitigation Strategies

No buying organisation can “avoid” this risk entirely because it is based on natural events. But steps can be taken to reduce the impact it will have on the business. There are two types of action that can be taken here. The first set of actions relates to how the organisation can reduce or minimise the risk in the first place. This means careful analysis and paying attention to the risks based on an understanding of supplier locations, and the probability of related issues arising from floods, earthquakes, or extreme weather conditions. Trusted third-party data from various sources can be invaluable here to aid understanding.

Understanding that situation and the probability of events means the buyer can look to achieve a spread of supply, certainly for mission-critical items or services. It may be that the buyer chooses to accept the risk that an excellent supplier is situated on the San Andreas Fault; but it would probably make sense to ensure that the back-up supplier is not also in the same vicinity. Insurance is another potential mitigating action”.

We then go on to look at the second set of actions - what can be done when an event hits. And that gives us the excuse to tell an old joke.

“The second set of actions relate to the response to risk events when they happen. We can illustrate a key point here with an old joke. Two men are walking in the woods. A large bear appears and acts in a threatening manner. One man gets running shoes out of his rucksack and puts them on. What are you doing, says the other man - you can’t outrun a bear even with running shoes!  No, the first man says. But I don’t need to run faster than the bear. I only need to run faster than you!”

The point is that your aim should be to react faster than your competitors after an event does occur, and we go into that in more detail in the paper - download it now for more insight and recommendations.

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