Companies failing to address supply chain dependency threats
The Marsh survey found that 40 percent of respondents were not prepared for a terrorism attack, while only 28 percent were prepared for a natural disaster that could destroy their supply and business operations. Matthew Elkington, vice-president of Marsh’s Risk Consulting Practice, said: “The dramatic rise in supply dependencies with Asia, and in particular China, creates significant and diverse risk exposures, several of which are unique to the region in terms of their nature or severity. For example, according to the European commission, 50 percent of product risk notifications arising in the EU in 2005 originated from China. “Intellectual property, counterfeiting and ethical risks are often just as important as the more traditional infrastructure, financial and natural disaster considerations and should be given equal weighting on a company’s risk agenda,” states Mr. Elkington. The companies that participated in the survey were a combination of multi-national organisations that have supply chains or sites in Asia and independent companies domiciled in the region Infrastructure risk This is especially concerning when. according to the World Bank, east Asia will need to spend $165 billion a year over the next five years to bring its infrastructure in line with current needs, which means some businesses are currently operating with inadequate infrastructure. Mr Elkington said: “Without the proper infrastructure to sustain day-to-day business activities, such as manufacturing, the cost in business interruption can be extremely high.” “With infrastructure risk so high a focus and so significant in its effect on businesses, it is alarming to find that many survey respondents were not happy with the local infrastructure, or confident that their business continuity plans would be sufficient.” Product risk, quality and counterfeiting This risk will continue to grow in the area with the European Commission reporting that 71 percent of counterfeit goods entering the EU originated in Asia, with 54 percent from China alone. The risks to profits that counterfeit items have on businesses are very high, as are the risks of genuine products being associated with poorly produced counterfeit versions that need to be recalled. Ethical risk Ethical risks, while less tangibly recognisable than infrastructure risks, can have severe effects on a business. Some companies face the risk that their Asian suppliers may be operating in an environment with poor labour laws and environmental records, and there are reputational risks if organisations are seen to exploit that. Natural disaster Asia has experienced several large scale natural disasters in the past few years, with the areas around eastern-China, India and Indonesia being the hardest hit. While these disasters can have a major impact on the physical side of a business (property damage, stock loss etc.), the disruption to the supply chain can often be the most devastating. Mr Elkington said: “The effects on the supply chain and the interruption to the business are usually the most expensive. In many natural disaster cases, people can not come to work, product is damaged and it’s very difficult to transport what product there actually is. So while a business is paying to fix the problems and damage from the disaster, no money is actually coming in. Terrorism With large multi-national companies being targets for terrorist attacks, not only from extremists but groups such as anti-globalisation movements, the risks associated with operating in an area with less security should be given more consideration. Fraud and Corruption Mr Elkington said: “In our experience this figure is optimistic, with some companies that believe the right systems are in place in case of a disaster occurring being surprised when all the risks were not actually taken into account.” Pandemics Dr Lee Jong-wook, former Director-General of the World Health Organisation, has commented that it is only a matter of time before an Avian Flu virus acquires the ability to be transmitted human-to-human, thereby sparking an influenza pandemic. With such a level of certainty, many businesses need to be better prepared, particularly in the Asian area. Mr Elkington concluded: “To manage supply chain risks in Asia, businesses need to map their risk exposure, identify and prioritise the major issues, run in-depth analysis and programme implementation, and finally monitor and control the process. Risks will always be present and crises will occur, but with solid contingency planning and supply chain risk management, companies can minimise the negative impacts and manage these situations more effectively.”
•Date: 1st September 2006• Region: Various •Type: Article •Topic: BC statistics |
