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Prepare Your Supply Chain for Natural Disasters

A new UN report that warns of $100 billion in annual losses from natural disasters should prompt supply chain managers to update risk management strategies and adopt more resilient practices.

The report, “Global Assessment Report on Disaster Risk Reduction 2013,” paints a gloomy picture. If news of direct economic losses from disasters walloping past $100 billion annually for three consecutive years — a figure that does not include uninsured losses — isn't nervous-making enough, the report says in its first sentence on its first page, “the worst is yet to come.”

Continuing population growth, rapid urbanization, climate change, and an “approach to investment that discounts disaster risk” open up the possibility for more catastrophic losses. The report goes on to say that the full scale of disaster losses has probably been grossly underestimated until now:

One trillion dollars have been lost in the last decade due to disasters. Such statements are familiar to investors but they only partially reflect total disaster losses. Between 1981 and 2011, total direct losses in these countries were approximately US$305 billion… The implication is that the headline-grabbing figures recorded in global datasets over the last decade may be quite conservative. Once the losses associated with nationally reported smaller disasters are included, those figures are likely to be at least 50 percent higher. At the same time, these figures refer only to direct losses and thus exclude the cost of indirect losses and wider effects of disaster.

Below, Andrew Maskrey, lead author and head of the risk knowledge at the United Nations Office Disaster Risk Reduction, summarizes the report's findings:

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On a company level, the news causes a shudder, too, when thinking about potential globalized supply chain vulnerabilities. Toyota, for instance, lost $1.2 billion in product revenue because of parts shortages resulting from the 2011 Japan earthquake and tsunami; this caused 150,000 less cars made in the US, and reductions in production of 70 percent in India and 50 percent in China, the report indicates.

Even in “less risky” places like the US, companies still have to deal with these issues. The report found that most of the 1,300 businesses surveyed in disaster-prone cities in the Americas noted power, water supply, and telecommunications disruptions were top concerns.

In all its doom and gloom, the report also points out spots of silver linings and encouraging signs of progress. One notable shift is that public-private partnerships in risk management are proving to be valuable assets in times of crisis.

There is growing private sector recognition that the model has to conceptually move from one of shared risk to shared value — meaning that efforts would go further if the idea of shared risk avoidance moved towards public and private sectors taking a more systematic approach in addressing underlying risk drivers.

There are other signs that businesses are adopting improved risk strategies and more resilient practices, including, according to the report:

  • Businesses are shifting their focus from preparing for and responding to disasters to identifying, analyzing, and managing disaster risks.
  • Businesses will increasingly integrate disaster information into a broader analysis that better informs investment decisions, which in turn will influence government approaches to risk reduction.
  • Businesses will begin integrating disaster risks reporting in order to provide a fuller picture of exposure and performance.

The idea is that if companies can better estimate and manage their disaster risks, they will be less likely to invest in hazard-prone areas and more likely to invest in measures to reduce the vulnerability of their facilities and supply chains.

It sounds good on paper. But how are electronics companies taking these steps in practices? Tell me in the comments section.

14 comments on “Prepare Your Supply Chain for Natural Disasters

  1. Ariella
    June 10, 2013

    A trillion dollars is a considerable sum. Do you know how precisely measured it is? Is it some kind of extrapolation of areas beyond those in the countries in which  “total direct losses …were approximately US$305 billion”?

  2. Ariella
    June 10, 2013

    One other concern I have is this: “they will be less likely to invest in hazard-prone areas.” The thing is that there are areas that are not particularly hazard-prone, say New York, which typically emerges from hurricane seasons unscathed, that still get hard hit by disasters when they do strike. One store in my neighborhood, for example, only reopened now after suffering extensive damage from Sandy (which wasn't even classified as a hurricane when it struck our areas). Others parts of the US are subject to tornadoes, river flooding, and major snow storms, and the same can be said for most countries in the world. 

  3. Tom Murphy
    June 10, 2013

    In this day and age, I think the world has grown small enough to realize that we are all disaster prone. Oh, Oklahoma may not get hurricanes like Florida, but it seems to have tornadoes every day at this time of year.  Texas suffered through the Dust Bowl, but probably will not have the kinds of floods that idled disk drive plants in Asia.  But as long as it is part of the planet, nature can play a fierce hand at any time, any where.  (Did you know the biggest recorded earthquake in the US was in Missouri, not California? True.) 

    As to how large they can be, I think the report makes a good point by saying, well, we don't know. A once-a-millenium event is really not something that I want to witness in my lifetime.  (Think about all the meteor marks on the moon. And Ask old Noah about flooding.)   Fair to say that some events will be (WILL be) so big that the supply chain cannot prepare.

  4. Ariella
    June 10, 2013

    @Tom that's just the thing. Even if you know that something like a tornado will strike, there is little you can do about it. And even places that normally are very stable can be utterly destroyed in minutes by such natural disasters. The best options, I suppose, is just to have a backup plan for such instances. 

  5. Anand
    June 11, 2013

    Businesses are shifting their focus from preparing for and responding to disasters to identifying, analyzing, and managing disaster risks.

    @Jennifer thanks for the post. Its good to know that companies are taking more proactive measures to face such challenges. I am sure such steps will help them to mitigate the loss caused by such events.

  6. elctrnx_lyf
    June 11, 2013

    Electronics Supply Chain is more sensitive to any natural disasters because of the overll complexity ofany electronic products unlike food or beverages. Every single component should be avaialble for the production or else the complete production has to be delayed. The risk of electronics is slowly impacting all the products whereever the use of electronics is rising like infortainment electronics is automotive. The guide to avoid the major issues is to make sure complete supply chain is assessed any higher risk suppliers shall have an alternate.

  7. Anand
    June 11, 2013

    The best options, I suppose, is just to have a backup plan for such instances.

    @Ariella, I totally agree with you. I think best way to deal with such instances is to have a backup plan by having the business units in multiple places. Though this might increase the running cost but such plans will definitely help tthe companies by providing backup option.

  8. Anand
    June 11, 2013

    Electronics Supply Chain is more sensitive to any natural disasters because of the overll complexity ofany electronic products unlike food or beverages

    @electrnx_lyf, I totally agree with you. Electronics supply chain is very sensitive to any such events and moreover many electrnoics manufacturing units are located in places like Japan, South Korea which are very sensitive zones. Hence companies should start building their plants in areas which are safe and are less prone to such challenges.

  9. itguyphil
    June 11, 2013

    That's the tough part. Either due to the rarity of less risky locations or the cost associated with not being in flood zones.

  10. Tom Murphy
    June 11, 2013

    As a reporter for the AP back in the 80s, I heard a woman from the Geological Survey explain that everyone should have three emergency kits; one for work, one for home, one for the car.  I asked if she did.  “No,” she said. “I just carry $200 at all times.”

    So that's another way to go. Keep a bunch of cash in your treasury — literally a rainy day fund.

  11. Ariella
    June 11, 2013

    @Tom well, it's something, but it doesn't help you survive if you're trapped in your home or car without access to someone who will sell you the food, water, flashlights, etc. taht you would need during an emergency.

  12. Lavender
    June 12, 2013

    Usually, supply chain is looked as something for manufacturers. But the increasingly frequent natural disasters make everyone some murder. Due to different activities, greenhouse effect generates… which undoubtedly have an impact on natural disasters. So, everyone is responsible for supply chain. 

  13. Eldredge
    June 17, 2013

    @Tom – At least Noah had some forewarning, not to mention a recommended plan of action! Not sure we'll have that benefit.

     

     

  14. MelBrandle
    July 29, 2018

    I guess a business plan would usually comprise of other form of failures that often exclude natural disasters. For the supply chain sector, this is especially important since deliveries are shipped via various forms of transportation. Bad weather could affect the skies, the seas and even ground trasportation. Thus, a systematic workaround plan needs to be incorporated as part of a business plan to ensure measures can be executed should unforeseen circumstances arise.

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