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:
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.