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Protecting your supply chain against catastrophic events

Supply chain

In our ever-increasingly connected world and the “hyper-globalized” supply chains that keep it running, a natural disaster tends to have widespread effects well beyond ground zero. While the local impact to humans, property and the wider ecosystem caused by floods, fires and other catastrophic events can be devastating, the ripple effects can reach across the globe and affect business everywhere.

For example, the 2011 Tohoku earthquake and subsequent tsunami in Japan upended automotive supply chains across the globe, with car part facilities temporarily shutting down in the United States, Thailand, the Philippines and Indonesia. In September 2017, Hurricane Maria battered the Caribbean Island of Puerto Rico, knocking out the main production facility of Baxter International, which supplies 41% of the saline solution used in the United States, leading to widespread shortages in hospitals across the country.

As natural disasters are increasing in frequency and magnitude, the implications for supply chain risk management can be overwhelming. In fact, responses to Interos’ 2023 annual global supply chain survey suggest that 96% of enterprises don’t know if their supplier has been affected by a natural hazard until 48 hours after it happens … and they’re losing $45 million annually as a result.

Besides natural hazard events, catastrophes caused by disease can also be debilitating. Labor shortages due to sickness, hospitalizations and deaths, or in extreme cases (do I really need to mention Covid-19 here?), complete lockdowns on people’s ability to travel, work and create, wreak havoc on normal business operations with a compounding shockwave across supply chains.

Given that catastrophic events lead to deadly and costly supply chain disruptions, catastrophic risk is at the forefront of operational and supply chain resilience. For Procurement teams, it is becoming more important to understand which suppliers are located in areas prone to experiencing natural hazards. And once a natural hazard is detected, there is a necessity to quickly identify which suppliers could be impacted, to what extent and what alternatives exist to keep operations running smoothly.

This could be attempted simply by looking at a map with known locations of critical suppliers, as many of us have a rough understanding of which areas of the globe are affected by hurricanes and cyclones, seasonal monsoons and the potential of droughts. But this only provides us with a small slice of the larger picture regarding catastrophic risk.

More challenging is understanding which sub-tier suppliers are at risk of catastrophic weather events, disease and pandemics and other natural disasters. This includes the benefits of an early warning to impending catastrophes where suppliers and sub-tier suppliers are at risk of immediate disruption, so that procurement and supply chain can respond sooner and kick off emergency response plans to ensure business continuity.

Another key component of managing catastrophic risk is the ability of the local area to weather the storm (pardon the pun) and respond quickly and effectively in restoring essential services after an event. For example, the impact of an earthquake may be increased by factors such as the number of buildings in the affected area, however, the impact may be decreased or mitigated if the affected area enforces building standards designed for earthquakes. As such, two otherwise equally capable suppliers, both in regions subject to severe storms, could provide completely different levels of resilience based on the quality of the local infrastructure (roads, ports, etc.), communications network, and access to modern healthcare services.

Understanding the growing impact of these catastrophes — and building the resilience needed to withstand them — will be critical to maintaining global supply chains and should be a top priority when assessing supply chain risk across your business. That’s why Interos has just introduced a unique catastrophic risk model that is incorporated into our i-ScoreTM for measuring supplier and supply chain resilience, using historical data to identify areas prone to disasters and healthcare pandemics, real-time data to alert of current risks, and regional infrastructure data to assess the ability to withstand and respond to disruptive events.

Whether it’s in the process of evaluating new suppliers in a sourcing project, monitoring existing suppliers for potential disruptions at the point of a natural hazard such as flooding or wildfires, or assessing your entire supply chain’s exposure to a tropical storm hitting the southern coast of California, catastrophic risk is a cornerstone to supply chain resilience.

This content does not necessarily express the views or opinions of Spend Matters.

Digital Procurement