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A U.S. West Coast Reminder of Potential Value-Chain Disruption Risk

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Supply Chain Matters has frequently reminded our readership on the increased existence of supply chain risk in a multitude of commentaries. Our latest was a mere few weeks ago when we called reader attention to a Resilinc published study indicating that concentrated risk remains in sub-tiers of global supply chains and that for automotive and high tech supply chains, that risk is concentrated in four countries and four major component suppliers.  

Last night, we picked-up an alert to postings by the San Francisco Chronicle and the Huffington Post Green site which caused us a pause. Perhaps our readers, especially those with supply chains, product development or design operations located on the U.S. west coast should also take note.

Both postings report that a recent U.S. Geological Survey reveals that if a large earthquake, on the magnitude of 9.1 or higher, were to strike off the coast of Alaska, it could trigger a devastating wave of tsunamis that could cause widespread destruction to California coastal regions. That destruction potential is described by USGS scientists as at least $10 billion, and have the potential to destroy the port facilities of Oakland, Los Angeles and Long Beach, as well as flood low lying areas of San Francisco and the Bay Area. Scientists also predict that widespread flooding could impact 13 low-lying counties of California including flooded buildings, facilities and warehouses with likely damage in the hundreds of million. These reports did not address other west coast regions potentially at-risk such as Oregon or Washington.

While our readers may initially come to the conclusion that such a magnitude tremor is not likely, best recall that the Tohoku earthquake and resultant tsunami that devastated Northern Japan in 2011, and caused multiple and considerable industry supply chain disruption, was of this same magnitude. In their reported briefing of officials, USGS scientists characterized this type of event occurring in Alaska and the U.S. west coast as “hypothetical but plausible”.

If this latest study does not capture attention, consider that in preparation our Supply Chain Matters Top Ten Predictions for 2013, we included in our honorable mentions commentary, a report from the Guardian indicating that geologists believed that a 7.9 magnitude earthquake could hit the “Ring of Fire”, composed over 75% of the world’s active and dormant volcanoes and earthquakes, sometime in 2013.  The “Ring of Fire” is an arc stretching from New Zealand, along the eastern edge of Asia, north across the Aleutian Islands of Alaska, and south along the coast of North and South America. Thus far, we have noted multiple reports of significant sized tremors occurring in the Ring, particularly off the coast of Japan.

Again, we do not portend to be alarmists nor do we believe that supply chain teams have to incorporate plans for any conceivable “black swan” event.  However, we will continue to advise that supply chain teams need to be able to identify and quantify where potential risk exists in the extended value-chain, have certain plans to mitigate the most obvious risks, and have playbooks in-place to respond to major disruptions when they occur. New and evolving predictive analytics capabilities provide supply chain planners will the ability to conduct what-if and scenario planning around multiple potential events.

In the meantime, take heed to the latest U.S. focused study noted above. After having a few beers or some wine this weekend, check on your contingency planning related to U.S. west coast value-chain operations.

Bob Ferrari

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