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12 January 2012 | Adam Leach
The impact natural disasters can have on the global supply chain must be mitigated not forgotten, the World Economic Forum (WEF) has warned.
The Global Risks 2012 report, published yesterday, said events such as the Japan earthquake, flooding in Thailand and the 1999 Taiwan earthquake were examples of those that had severely disrupted manufacturing and global supply chains.
It said: “The danger is that such disruptions can be quickly forgotten as companies revert to the principles of lean business models, which imply that building redundancy and excess inventory into supply chains are a waste of resources.”
Based on responses from supply chain and transport risk experts to a 2011 survey to identify the most significant disruptions experienced, the report proposed five “priority mitigation areas”. These were: developing expert networks across business and government; defining and measuring risk quantification to support effective decision making; implementing effective legislation and incentives; improving data and information sharing; and extending uses of scenario planning.
Other risks identified included prolonged infrastructure neglect, the progress of an emerging economy coming to an abrupt halt, unmanageable inflation or deflation, and mineral resource supply vulnerability. Militarisation of space was also identified as a risk, though it was assigned a comparatively low likelihood rating.
John Drzik, CEO of Oliver Wyman Group, which worked with the WEF on the report, procurement and supply chain professionals are taking risk management more seriously in the wake of recent disruptions, but he believes there is still a way to go.
At the launch of the report in London, he told SM: “I don’t think it [risk management] has moved far enough just yet, but it is moving up and I think supply chain people are looking at how they can diversify their supply chains.
“Over the past 20 or so years it’s been one of the dark sides of globalisation, if you will, in that there has been certain types of manufacturing that have been concentrated. That’s being rethought though in the context of things like major floods, earthquakes and natural disasters. The trade off of cost versus risk is being more actively considered. But in general, risk management still has ways to go in terms of moving up the [corporate] agenda.”