Category Archives: Risk Management

If You Don’t Have Earthquake or Hurricane Insurance for Your Supply Chain

Get it now!

This recent graphic from Swiss Re that charts the amount of insured losses per year since 1970 clearly demonstrates that the bulk of losses were due to weather-related causes or earthquakes, with the biggest losses directly attributable to earthquakes and hurricanes. In the last forty-two years, only one year had significant losses not due to an earthquake or a weather related phenomenon, and that was the year of the September 11th attacks. Except for these attacks, losses from mad-mad disasters never exceeded 10 Billion, even in years where losses exceeded 120 Billion. So while it’s a good idea to have the standard insurance suite of fire, theft, and liability — where your supply chain is concerned, a natural (weather-related) disaster is going to be MUCH more costly.

The Cost of Catastrophes

Are Your Supply Chains Prepared for Riots?

Last August, SI pointed out that food costs are still spiking and asked if you were ready for the risks. At the time, food riot fears were on the rise around the globe, including in developed countries like Japan, Canada, and the UK, where riots DID take place.

Well, it looks like the risks are coming back again. A recent article in The Financial Express that notes that the supply chain of essential items faces disruption in Dhaka, Bangladesh, as the supply chain was shutdown for 48 hours countrywide earlier this week amid fresh fears of commodity price hikes. Truck owners in rural and suburban areas refused to drive due to fear of vandalism and arson before, during, and even after strike hours.

As a result of the strike, poor people, and day labourers in particular, have been hit particularly hard – as per a front page article on the daily sun. The two day shutdown enforced by the Bangladesh National Party (BNP) (which is Bangladesh’s opposition political party to the governing Bangladesh Awami League) ended up paralyzing normal life as many people stayed inside due to panic triggered by hartal (strike) violence. As a result of the strike, the fears of price hikes have come to pass as the prices of essential commodities have risen.

It doesn’t look like this is a situation that’s going to end well. Especially since a recent article over on the Guardian has proclaimed that food riots are likely to become the new normal as a result of intensifying inequality, debt, climate change, and fossil fuel dependency. Since 2008, global food prices have been consistently higher than in preceding decades, despite wild fluctuations. This year, even with prices stabilizing, the food price index remains at 210 – which some experts believe is the threshold beyond which civil unrest becomes probable. Food riots are still a regular occurrence in Egypt, Tunisia, and Libya — and have been ongoing for over a year in some of these places.

What’s going to happen when prices rise again as a result of tight grain stocks from last year’s poor harvest (which was down 3% from the 2011 record harvest due to adverse weather conditions)? Of if rice yield, which has decreased 10% to 20% in key food-basket regions due to droughts exacerbated by global warming, keeps worsening?

Riots are coming across the globe. Is your supply chain ready?

Could You Run Your Supply Chain from Another Country for A Month?

A recent post over on the HBR Blog Network on why we’re relocating our HQ to Dubai for one month about Starwood’s one month move of their HQ to Dubai for one month brings up an interesting question:

 

Could you run your supply chain from another country for a month?

 

It’s an important question. Because if you can’t, you’re not prepared for a disaster. And given that the likelihood of a disaster shutting down your primary location is increasing as the number of natural disasters rise each year (thanks to global warming), you should be. While the risk of a disaster shutting down your Supply Management headquarters is likely small compared to the risk of a significant disruption impacting your supply chain (which is approaching 85% for many companies), the risk is there. And you have to be ready.

Furthermore, if you have the right supply management infrastructure, you should be just as capable of running your supply chain from another country as you are of running it from a temporary location fifty kilometres away. If you have a true visibility solution, you just need an internet connection and you know where everything is. If you have a good sourcing and procurement platform, you can source and order whatever you need from anywhere. And if you have a good e-payment solution, you don’t need to pick up a check from a PO Box. Good distributors have their own on-line visibility and transportation management systems, and all of your 3PL and Import/Export Brokers can be connected with an e-Document Management solution. Plus, if you truly are global, you should be able to set up quickly near a major supplier who wants to help you out in the local country to keep you as a major customer.

In other words, if you couldn’t pick up and temporarily relocate your Supply Management headquarters at a moment’s notice, you probably don’t have a modern Supply Management office running on a modern Supply Management platform. And you should. Especially since there might be no better way to really learn a major market that you are sourcing from.

Supply Chain Planner — Here are Three Solutions to Nearly Every Problem

A recent piece over on Supply Chain Cowboy on “Three Silver Bullets to Solve Nearly Every Supply Chain Fire” simultaneously enthralled and shocked me because I cringe every time I hear that air freight is one of the three solutions to your current supply chain dilemma, as it is a prime indicator of a major supply chain issue — specifically, lack of planning.

But there are ways to avoid the issue. The first one is:

Supply Chain Forecasting Systems

A good, modern, supply chain forecasting system is the best way to figure out not only what you are going to need, but when you are going to need it and when you are going to have to get the orders in and production started in order to meet shipping deadlines and avoid the need for air freight.

The second way to avoid the issue is:

Supply Chain Visibility

(Near) real-time visibility into where your stuff is from your suppliers, their suppliers, and their raw-material suppliers. All delays have ripple effects, and the best way to prevent a hiccup, or disruption, that will force you to have to use air-freight is to have real-time visibility all the way through your supply chain so you can be aware of a potential issue as soon as it happens.

And the third silver bullet, I’m sad to say, is:

Standby Air Freight

Good forecasting will significantly reduce the number of emergencies and the number of times you have to ship air-freight to meet a deadline, and good supply chain visibility will reduce this number even further as you will be able to order from secondary suppliers or ship through back-up carriers when hiccups or disruptions do arise to meet the deadlines laid out in your forecasting system. That being said, no technology will completely eliminate the need. There will always be unexpected events that will cause interruptions at the last minute where the only recovery option is to air freight reserve stock. If the Super Panamax ship gets delayed a week in port because of customs issues after your cargo is loaded, there’s nothing you can do. Or if a second tier supplier gets cut off because of a civil uprising and you have to arrange for the first tier supplier to get replacement product from another second tier supplier further away, there may be no other way to get the product fast enough. That being said, the number of instances where there is no way but up should be few and far between with good supply chain planning and visibility systems.