Planning a supply chain management strategy can include complex factors, with risk among them. A natural disaster can bring an entire logistics organization to a halt, meaning firms must prepare for the most likely types of disruption or risk lengthy downtime. A recent report by risk analysis firm Maplecroft found the worst risks of disruptions lurked in Asia. As so many companies have taken pains to globalize, these threats may be relevant to trading partners all over the world.
Natural disaster risks exposed
According to the source, the industrial dangers in countries like India, Bangladesh and the Philippines represent a confluence of vital supply chain links, high natural disaster occurrence rates and insufficient infrastructure to rebuild quickly after a problem has struck. The Maplecroft report indicated that a flood or earthquake in one of the high-risk nations could cause significant damage to a major city and affect shipments. Furthermore, the time needed to rebuild the links lost would be significant.
"Given the exposure of key financial and manufacturing centers, the occurrence of a major event would be very likely to have significant implications on the total economic output of these countries, as well as foreign business with interests there," explained Maplecroft researcher Helen Hodge.
The ability to recover from natural disruptions, according to Maplecroft, is important in determining the supply chain strength of a country, more important than simply avoiding disasters in the first place. The source noted that the overall risks for an environmental catastrophe are greatest in Japan, the United States, China, Taiwan and Mexico. Those countries did not place near the top of the disruption risk due to their ability to bounce back from natural disasters.
Despite risk's central role in determining supply success and failure, some companies have not yet perfected a way to calculate a way to quantify it. According to EBN contributor Douglas Kent, firms can integrate risk directly into calculations of the innate value of new programs.
Kent encouraged managers to make risk calculations on a case-by-case basis. He stressed that an overall continuity and recovery plan is likely not sufficient to protect processes at all levels. Kent stated that multiplying the probability of each damaging event occurring by the amount of effect it could have on the business, supply chain leaders can compare disparate dangers and decide which are most deserving of countermeasures.