Since the mid 80s, the emergency management community has preached a clear and consistent message: Prepare businesses, schools and homes to be self sufficient for 3 days. Way back then, some even suggested 7 days! All agreed that after a major disaster, it could be days before outside help arrives. The importance of personal preparedness was re-emphasized after 9/11 by former Homeland Security Secretary Tom Ridge: “We can be afraid or we can be ready.”

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In modern supply chains, supplier risk is no longer limited to supply disruptions or quality lapses and also includes legal, financial, and brand risk, as evidenced by recent catastrophes which have caused unequalled harm of a preventable nature to pets and people alike. Nor is supply risk limited to products, as approximately 80% of the US economy is now driven by service industries. Risks need to be managed, as highlighted in a recent Supply Chain Management Review article on Coming to Grips with Supplier Risk.

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Marsh has issued a warning that the current "financial instability and deteriorating economic conditions in the UK are prompting companies to improve efficiency and drive down operating costs in their supply chains. However, these will increase risk exposures."

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The SCOR model now includes supply chain risk management assessment, tracking and mitigation methodologies.  This is yet another indication that supply chain risk management is becoming even more mainstream.   If the recent financial meltdown has taught us anything it’s that every organization (from large enterprise down to the small business) needs to have a clear understanding of the risks facing them and an effective mitigation strategy to deal with the identified risk.

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While an overwhelming majority of North American companies sees risks associated with their supply chain as having grown more significant, complex, and costly, they also consider themselves largely unprepared to deal with these elevated exposures. A new study of 110 North American risk managers by Marsh in collaboration with Risk & Insurance magazine, finds more than seven in 10 (73%) believe their supply chain risk has risen since 2005; nearly the same number (71%) believes the financial impact of disruptions to their supply chain has also grown. Most businesses are ill-prepared to handle the rising risk levels, caused by more global and complex supply chains that are increasing supplier disruptions, logistics delays, and product recalls and safety issues. Indeed, no risk managers in the study considered their companies to be "highly effective" at supply chain risk management.

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Today’s headlines are full of natural disasters and financial failures. The risk of a supply chain disruption has never been more real. It’s your responsibility to help predict and prevent supply chain disruptions, so here are a few best practices you can employ to assess supply chain risk when evaluating prospective suppliers.

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In recent years, the number, scope, and complexity of federal continuity requirements has grown dramatically. This growth reflects a heightened awareness of the risks modern society faces. Recent terrorist events have had a profound effect on everyone’s thinking, but infrastructure and natural disasters, such as the 2003 Northeastern Blackout, the 2004 Southeast Asia Tsunami, and Hurricane Katrina in 2005 also weigh on the minds of continuity planners. The potential of a future influenza pandemic and the growing concern about more extreme weather caused by climate change adds to these concerns.

This raises questions that all federal continuity planners must answer: How do I get the big picture in focus? What is relevant to my Department? How do I prioritize efforts? How do I get ready for the next big event?

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The whitepaper begins by describing the benefits of "supply chain design." I agree that, too often, our supply chains are essentially a hodgepodge of disparate suppliers, each selected independently of one another. It is beneficial to take a step back and evaluate the supply chain as a whole to identify opportunities for improvement of the supply chain for the sake of the supply chain, rather than on a category-by-category basis.

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Supply chain excellence does not happen by accident. Firms with outstanding supply chains have made it a part of their strategy and operations. Among other aspects, risk management is for sure one of the pillars of such excellence.

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If you’re glued to the Dow/Nasdaq/S&P 500, let me ask you whether you’re equally glued to your supply chain cockpit i.e. if you have one? Regardless, if there is going to be a Supply Chain shock that is a consequence of tightened credit requirements, what is your plan, your firm’s plan for dealing with the fallout? Since offshoring and outsourcing have created a manufacturing base overseas, the impact of tightening credit requirements will not only be felt stateside but at all points along that financial supply chain.

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