Supply Chain Risk Briefing Paper 4 – “Man-Made” Risks

Our last supply chain risk briefing paper covered natural disasters, but now in the fourth in our series, sponsored by risk management solution provider riskmethods, we move onto “man-made” events. You can download the paper here, free on registration.

There short two-page briefings give the background to the risk category and the drivers behind it, discuss the potential issues for buyers arising from those risks, then suggest some of the appropriate actions that procurement and supply chain executives should be taking to manage, minimise or mitigate these risks. We also include some short “case-studies”, real examples of where the risk has had certain consequences.

Our definition of “man-made” events is pretty broad, including strikes and labour disputes, fires, explosions and similar, as well as simply supplier business decisions that can have knock-on risk outcomes (such as re-locating a factory). Here is an excerpt from the paper, including some of the discussion around recommended actions as well as one of the “case studies”.

Excerpt from Supply Chain Risk Briefing, Part 4

“Man-Made” Risk  - Different Risks Require Thoughtful Strategies

 

What Drives This Risk?

Issues here arise in the main because of some sort of human action or inaction, although in some cases it may be down to bad luck more than incompetence or omission. An electrical power surge could cause a fire that destroys a factory; the author of this paper has personal experience of exactly that happening, and saw the very serious consequences in terms of the outcome of that risk event.

Perhaps of all the risk types described in this series, the events in this category are very hard to predict in advance. There may be some signs that a small labour dispute might turn into a wholesale factory walk-out, but often the risk event comes as a surprise to the supplier, as well as to their customers. That means effort from the buyer needs to go into both contingency planning up-front, then in making sure that information about the event is received promptly so that the response can be made rapidly and effectively….

“A port strike on the west coast of the United States is causing disruption to importers and exporters. Twenty-nine ports, which handle more than 70% of US imports from Asia, have partially shut down for a third day… Hundreds of millions of dollars’ worth of goods have been left languishing in long queues on shore”.  (BBC, Feb. 2015)

 

 Suggested Actions and Mitigation Strategies

As in the case of natural disasters, no buying organisation can “avoid” this risk entirely. But steps can be taken to reduce the impact it will have on the business. The first set of actions relates to understanding the risk and putting contingency plans (such as alternative supply sources, or appropriate insurance) in place, certainly for mission-critical items or services.

The second set of actions relate to the response to risk events when they happen. We used a joke in the previous paper to illustrate the point that the key here is to respond faster than the competition. There may be no perfect solution to a port strike or to a supplier’s factory burning to the ground. But knowing what is going on before your competition might enable the buyer to put alternatives in place – different transport options, increasing stockholding or securing alternative sources of supply – before others can do so.

 

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