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World Economic Forum Research Report Reflects on Global Supply Chain Risk

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The World Economic Forum has released a new January 2013 research report, Building Resilience in Supply Chains, (download web link) which provides interesting data on how important supply chain risk mitigation has become on the global stage. This report was aided by contributions Accenture and Zurich Insurance Group.

This World Economic Forum Supply Chain Risk Initiative began in 2011, and has since fostered a series of workshops among industry and governmental leaders throughout 2012.  This latest Phase II report explores government and multi-industry sector views on systemic supply chain risk with recommendations for building a resilience framework to manage such risks. It includes results from an annual survey of over 1000 experts who were asked to review the landscape of 50 global risks. What makes this report of further interest is its inclusion of global-wide viewpoints, including those from Asia based countries which represent many tiers of current global supply chains. It also provides a new quantification as to the global awareness, cost and impact of major supply chain disruption. It cites Accenture research noting that more than 80 percent of companies are now concerned about supply chain resilience and that significant supply chain disruptions can cut the share price of impacted companies by 7 percent on average.

The report concludes that there are three “must have” requirements for building more resilience:

  • The need for a common risk vocabulary
  • Improved data and information sharing across industry supply chains
  • Building greater agility and flexibility into resilience strategies

Further noted was that throughout 2012, systemic risks continued to be a top concern for supply chain managers globally. The report also validates what Supply Chain Matters incorporated in last year’s predictions for global supply chains, namely that the continued high cost of disruptions has led insures to reduce coverage and increase premiums for certain global regions.

The top-five risks highlighted in the report were:

  1. Severe income disparity
  2. Chronic fiscal imbalance
  3. Rising greenhouse emissions
  4. Water supply crisis
  5. Mismanagement of population aging

Severe income disparity was noted as the risk most likely to manifest over the next 10 years, while major systemic financial failure was a risk having the highest impact. In 2012, extreme weather emerged as a more prevalent concern, no doubt from the realization of severe climatic related disruption across the globe.

An additional 2012 survey among 469 executives and risk experts identified three non-traditional risks:

  1. Social contract disintegration
  2. Inflexible and uncoordinated (governmental) regulation
  3. Cyber-risk

The notions of cyber risk are very much top of mind.  This week, both the New York Times and the Wall Street Journal reported that their internal IT and email sites had been the victim of cyber spying. Bloomberg and Thomson Reuters also confirm that attempts to penetrate each of their systems have previously occurred. Last year many global banks were targeted by cyber threats.  Imagine if your mission critical supply chain systems are penetrated for unwelcomed reasons. As part of its conclusions, the report calls out for: “IT systems to be scalable, secure and re-routable

Getting back to the World Economic Forum report, noted is that despite fears that building more resilience into the supply chain will create cost, most experts surveyed noted that efficiency and resilience can coexist.  That is an important conclusion that readers might want to dwell upon.  The report acknowledges that it can be challenging to permeate an organization with incentive structures that focus on managing risk.  However, this author would quickly add that a framework of shared risk that is much broader than finance and/or procurement can be something to consider.

In this same vein, the report notes that European and North American respondents emphasize building a culture of risk management across suppliers as a top priority, however this is less valued in Asia, where business growth elicits tolerance for high risk.  That, in our view, is an interesting finding, one that procurement and sourcing executives should dwell upon.

This new report on global supply chain risk is certainly one that you should find some time to review for applicability to your ongoing risk mitigation strategies and investment plans.

If your organization needs outside, objective assistance in synthesizing supply chain risk mitigation plans, do give us a ring.

Bob Ferrari

 

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