New Supply Chain Risk Briefing Paper – Natural Disasters

Floods! Hurricanes! Tsunamis! Earthquakes ! Volcanoes!

When we think of major risks to our supply chains, this sort of event is probably well up the list in terms of what first comes to mind, as well as high on the list of risks that can have very serious consequences. Most of us will have stories of suppliers who were affected by this “natural disaster” type evets and what it mean to us as buyers.

So the third of our Supply Chain Risk briefings, written in conjunction with riskmethods, addresses this and is simply titled “ Natural Disasters - How to Mitigate Unavoidable Risks”.

This was relatively easy to write, the only challenge being to keep it to our usual two pages, because there are so many interesting case studies. Sometimes events are unexpected and the consequences unexpectedly serious; who would have imagined that a volcano in Iceland could have a huge impact on global supply chains (and indeed transport in general)? But when but Eyjafjallajokull in Iceland erupted in 2010, it caused huge problems for many businesses.  BMW was forced to stop production due to missing components, for example, with the temporary halt in production resulting in delayed manufacture of around 7000 vehicles.

There is also evidence that climate change is exacerbating the problems here. The frequency of flooding in many parts of the world appears to be increasing;

While it is hard to eliminate this sort of risk from supply chains altogether, there are sensible steps that buying organisations can and should take. Understanding your current supply situation in terms of where key supplier premises are located is an essential first step. That can then be mapped against known risks of different events, to gain an understanding of the risk profile. You might accept one supplier having a factory on an earthquake fault-line if you have alternatives in safer locations; to have all three of your suppliers of that item in vulnerable places is not too wise.

Where risks are significant, strategies should be put in place to keep risk at acceptable and manageable levels, including having contingency plans just in case the worst happens. Then, the next key stage is making sure that you get notification of events as soon as possible when they do happen. That enables you to take action as quickly as your competitors – or maybe even to act faster than them and gain competitive advantage in some cases (we’ll discuss that in more detail next week in another article).

And don’t fall into the trap of thinking “well, my supplier will tell me if something goes wrong”. That is not necessarily the case; they may not want to, or they may simply not be able to immediately. riskmethods, who provide a risk management platform for their clients, have many examples of this. A major publishing company has had 4 cases of disruption to key raw material supply chains in the last 2 years because of flooding affecting supplier premises in India. In each case, the alert to the customer came from riskmethods rather than the affected supplier, and the firm was able to make alternative sourcing plans in order to maintain scheduled production dates.

So, natural disasters drive a major category of supply chain risks, and one that appears to be increasing as the global climate changes.  Whilst such risks cannot be avoided completely, there are sensible actions which should be taken by buyers. Read our briefing paper for further insight and ideas.

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