Risk oversights threaten US trade

12 May 2004
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13 May 2004

Most supply chains are vulnerable to potentially disastrous risks that could cripple a company's operations and wipe millions off share prices, an analyst warned.

Mike Kilgore, president of Chainalytics, said the idea of incorporating risk into supply chain planning was fairly new.

But failure to recognise potential problems such as strikes, natural disasters - there were more than 600 in 2003 - and supplier failure could have dramatic consequences.

A lot of supply chain analysis did not take into account changes to the environment, he said.

"This tends to result in an overconcentration of assets and suppliers that makes the supply chain very susceptible to different risks."

Kilgore said examples of supply chain failure hitting an entire company included a fire in 1997 at Toyota's only source of a £3 valve, which halted production of 14,000 vehicles a day at 20 plants.

While less dramatic, port closures and strike action could also cripple production and disrupt supply chains, Kilgore said.

He added that supply chain problems were the biggest single negative influence on share prices. On average, they caused a fall of 7 per cent and in most case values failed to recover within two years.

Kilgore recommended identifying potential risks, then determining how likely they were and the cost of spreading the risk.



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