Compounded Risk

Compounded Risk


        Supply Chain Risk Management

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A key supplier or buyer can be debilitated for a number of reasons: natural (floods, pandemics, earthquakes, severe storms), human (terrorism, civil disorder, electronic security breaches) or technical (power failure, hardware or software viruses). These events can have dramatic effects on supply chain partners both upstream and downstream.

A single disruptive event in Europe, for example, could initiate a customer service nightmare in the United States. And disruptions are more common than one might imagine—a survey of corporate risk managers and supply chain risk managers by insurer Zurich Services Corporation revealed that 74 percent of respondents had experienced a supply chain disruption within a 12-month period, not only affecting top and bottom lines but also damaging their brands and relinquishing market share. Potential effects of supply chain disruptions could include the following:

     • Reduced market share

     • Loss of customers

     • Damage to image, reputation or brand

     • Higher cost of capital

     • Potential breach of contract

     • Failure to meet legal or regulatory requirements

     • Decrease in sales and increase in costs, from which many
     companies never recover

While lean production has become a cornerstone of successful supply chain management and a way for businesses to stay flexible and responsive to changing tastes in their markets, the dependence on and relationship with suppliers resulting from outsourcing and minimizing stock creates a host of exposures. This was no better demonstrated than by the natural disasters in Japan in spring of 2011. Successfully navigating and managing the risks presented by a complicated supply chain that spans across regional, national and especially international territory is a complicated endeavor considering the countless precarious factors that can cause disruptions or liability issues across the entire supply chain.

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