Buyers must spread risks to avoid supply chain disruption

Gurjit Degun
16 January 2014

16 January 2014 | Gurjit Degun

Procurement professionals should not place "all their eggs in one basket" to successfully manage risk.

Speaking to SM at the launch of the World Economic Forum’s (WEF’s) Global Risks 2014 study today, John Drzik, president of global risk and specialties at Marsh & McLennan Companies, advised buyers to diversify.

“The geopolitical environment is unpredictable but clearly looks risky, and to put all your eggs in one basket is betting that you’ll have stability in whatever geopolitical relations you’re anticipating,” he said. “So spread risks so that if you do get a disruption the company can continue without significant disruption.”

He also explained supply chain disruption did not feature in the WEF report because the authors were looking at the underlying risks.

The report, which questioned 700 global experts, found the “chronic” gap between the rich and poor is viewed as the factor most likely to cause serious global damage in the coming 10 years. 

Jennifer Blanke, chief economist at the WEF, told a press conference this morning: “I think that we had the sense that there was a closing gap for a long time but now it’s been opening up again over the past decade or so.

“People are just not going to stand for it so it’s really eroding the social fabric.”

After income disparity, extreme weather is seen as the second most likely cause of a “systemic shock on a global scale”, the WEF said. This is followed by unemployment and underemployment, climate change and cyber attacks.

“Fiscal crises feature as the global risk that experts believe has the potential to have the biggest impact on systems and countries over the course of the next 10 years," it added.

“This economic risk is followed by two environmental risks – climate change and water crises – then unemployment and underemployment, and fifth critical information infrastructure breakdown, a technological risk.”

The forum also looked at how the global risks are connected to others. Respondents said global governance failure is one of the risks most connected to others.

“Global governance is very important, particularly when you think about the risks and the fact that these risks know no boundaries,” said Blanke. “If you don’t have global governance coordination, then it’s very hard to deal with all of the risks.” She added the importance of trust; long-term thinking and multi-stakeholder action were also raised in the report.

“The problem is that trust is being undermined in a lot of ways,” she said. “The young people really don’t have trust in many ways in the traditional governance structure, and all of us are really having concerns about having trust in the internet given recent reports of cyber espionage.”

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