Hurricane Matthew was battering the southeastern United States coastline as I wrote this, causing shoreline wind damage, inland flooding, and evacuations. This happened after the storm crossed the Atlantic and caused death and destruction in Haiti and other Caribbean islands. Even the Orlando theme parks were closed, signifying the intensity and danger of the storm.
Mass evacuations of a million or more people have occurred in the days leading up to the storm, and their return post storm might find them still displaced due to damaged property and impassible roadways. Life as we know it, in states like Florida, Georgia, South Carolina, and North Carolina, is on hold. Stores, factories, and service centers have been shuttered and all modes of transportation shut down. Once the storm passes, it will take weeks for business to ramp back up, clear backlogs, and have life return to normal for employees and customers alike.
Hurricane Matthew is an example of a traditional supply chain risk. For many, natural disasters like hurricanes, blizzards, floods, and earthquakes are the predominant local or global risks they face. These are tangible events that many have lived through at one time or another. We see them on the news or out of our windows, factor in their impact on the supply chain and our lives, and move on. While they may not be pleasant events, there is a certain comfort in their familiarity and pattern of resolution.
Emerging risk in the supply chain may have managers yearning for such traditional supply chain disruptions such as storms, labor issues, or winter flu outbreaks. The news, no matter how one accesses it, is full of stories that include terrorism, cyber attacks, geo-political upheavals, financial meltdowns and social unrest. Any and all of these news stories, often centered hundreds or thousands of miles away, has a potential impact on business operations. Supply chain managers need to pay attention to more than the weather forecast.
The World Economic Forum's paper, New Models for Addressing Supply Chain and Transport Risk, discussed a changing risk profile due to globalization, lean processes, and the geographical concentration of production in areas like Asia. They classify supply chain and transportation risk exposure as 'external disruptors' and 'network vulnerabilities'.
External disruptors include unexpected trigger events like the aforementioned natural disasters, but they also include conflict and political unrest, sudden demand shocks for commodities, government restrictions on imports and exports, and terrorism, including homeland security issues such as cyber terrorism. Network vulnerabilities address the more day to day recognized operational issues of the global supply chain such as the availability of shared data and information through the supply chain, the fragmentation of a global supply grid, multi-level subcontracting, and end-to-end supply chain visibility.
They write that management priorities to address these risks include developing reliable networks across government and business, assessing risk on a more regular basis by including risk identification and mitigation in supply chain strategies, enhanced sharing of data and information within the supply chain, and improved communication around specific events and disruptions. They find it evident that supply chain risk needs to be managed in concert with a global business /government partnership.
The Supply Chain Risk and Leadership Council (SCRLC) has also identified emerging risks in the supply chain and their risk profile reflects more of an operational methodology. Their highest rated risk is climate change. This risk includes not only a greater threat of larger and unpredictable storms, but also the impact of floods and droughts on agricultural output and population shifts due to changes in climate. Regulatory changes such as carbon foot print legislation may also be included in this risk profile as they can change patterns of supply.
Another identified risk has been created as an unintended consequence of our drive for lean and efficient supply chains. Reliance on just in time deliveries already puts a level of strain on supply and logistics, and any sudden shock can interrupt supply. This disruption is amplified due to limited inventory in the pipeline and the elimination of suppliers who could take over supply.
The third top area of emerging supply chain risk identified by the SCLRC focuses on social inequity, both on the domestic and international fronts. Consider the recent domestic protests that have impacted cities, closed highways or interrupted commerce in some way. Global protests, terrorism, and social unrest are risks to the supply chain. Add improprieties in large global financial institutions and risk gets even more complicated.
The concentric risk circles that supply chain managers need to study are constantly expanding and becoming more intricate. Some may yearn for the old days of more traditional risk such as a storm or a tie up out on the interstate. But today, managers with suppliers around the globe need to focus on international headlines as they deal with an emerging risk profile.