World Economic Forum says global supply chain faces risks

DAVOS-KLOSTERS, SWITZERLAND: The world needs governments and businesses to collaborate to greater degree to effectively manage risks to the global supply chain.

That’s the primary conclusion of a report issued by the World Economic Forum, which is currently meeting in Switzerland.

The report, New Models for Addressing Supply Chain and Transport Risks, is the result of a collaboration between the Forum’s Industry Partnership programs in automotive, aviation and logistics and the consulting firm Accenture. It is based on interviews and surveys with international academics, industry and government experts.

Taking into account major disruptions in the supply chain over the last five years—including events such as the global financial crisis, terrorist scares and attacks, flooding in Thailand and the Japanese earthquake and tsunami—the study has concluded that risk profiles are changing and that there is heightened awareness about risk preparedness within supply chain and transportation networks. The fact that these types of risk factors are outside of the direct control of any individual, business or government organization means that manufacturers, vendors, logistics providers, retailers, consumers, and governmental and regulatory bodies all must work together to mitigate risks and disruptions.

The report identified four categories of risks: environmental, geopolitical, economic and technological, and came to the following conclusions about each category.

Environmental: “As natural disasters are hard to predict or prevent, the focus must be on making the right investments before the event to reduce supply chain and transport network system vulnerability and improve recovery capability.”

Geopolitical: “Geopolitical disruptions are hard to manage in the short term, with limited opportunities for industries to influence outcomes. It necessitates a dual approach of both risk reduction and increased network resiliency.”

Economic: “The Global Risks 2012 report identifies major systemic financial failure, chronic fiscal imbalances and extreme volatility in energy and agricultural prices as three of the top five global risks having greatest impact if they were to occur. This further supports the general conclusion that economic disruptions are top of mind for risk experts across many domains.”

Technological/Infrastructure: “The expert group designated as ‘risks to watch’ two risks that were repeatedly identified during workshops and interviews as being relatively unclear regarding future impacts. Both are associated with technological and infrastructure disruptions where systemic failure of critical information and transport infrastructure could negatively impact industrial production, public services and the movement of people and goods.”

As well, the study identified what it calls the least effectively managed supply chain components. The top five of these are reliance on oil, availability of shared data/information, fragmentation along the value chain, extensive sub-contracting and supplier visibility.

It also concluded that there are a number of priorities needing attention, including:

• “Aligning legislation and regulation with modern industry practices is essential to improved risk management. However poorly targeted legislation and regulation also has the potential to unintentionally and unnecessarily exacerbate disruptions to the supply chain and transport networks.”
• “Improving the two-way flow of information between businesses and government was identified as a particular priority…given that 24-hour global news media can rapidly spread inaccurate or out-of-context information.”

The report concluded with five recommendations—one strictly for government, one strictly for business and three joint recommendations. It wants:

• Governments to improve international and inter-agency compatibility of resilience standards;
• Businesses to more explicitly asses risks;
• Businesses and governments to work together to develop trusted networks of suppliers, customers and governments focused on risk management;
• Improved network visibility and a collaborative development of standardized risk assessment along;
• Improved communications before, during and after systemic supply chain disruptions.