Risk ‘needs a rethink’

15 January 2010

15 January 2010 | Amy Rowe

Business leaders need to fundamentally rethink how global supply chain risks are managed, according to the World Economic Forum (WEF).

The organisation’s annual Global Risks report out yesterday said unaddressed risks could lead to “tomorrow’s crises” in the global economy.

The report, published ahead of the WEF’s annual meeting in Davos, Switzerland, later this month, follows a year-long consultation with businesses, academics and policy-makers.

Robert Greenhill, managing director and chief business officer at the WEF, said risk had risen as a result of the worldwide recession and the increased global links between supply chains.

“The findings of the report confirm that we must face up to the challenges created by these unprecedented levels of interconnectedness between risks,” he said.

The review advised global decision-makers to recognise risks as connected events. For example, in the same way the recession has reverberated around the world, a terrorist attack that led a port such as Rotterdam, Hong Kong or Los Angeles to close for weeks on end would have severe economic consequences on world trade because it would disrupt complex, just-in-time supply chains.

The study also highlighted a lack of awareness of crime and corruption, cyber-vulnerability and loss of biodiversity. Risk management improvements could include better coordination between an organisation’s divisions when risk arises, it said.

It follows the publication of two damning reports on supply chain risk management this week. The first by research company Mactavish found that large UK firms have a poor understanding of risk they have acquired during the recession.

In the US meanwhile, Fortune 1,000 firms are also failing to take the issue seriously, according to a separate study by technology firm Aravo.

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