Catastrophic risk high on the Forum’s supply chain agenda

By John Manners-Bell*, Editor and CEO, Transport Intelligence, UK

Modern integrated supply chains are complex, global and lean. This, in some respects has become a double edged sword. It has meant that when supply chains are working well, inventory is minimised whilst customer service improves. However it has also left them vulnerable to external ‘shocks’ and in recent years their fragility has been exposed.

For instance the Japanese tsunami earlier in the year had a major impact on many automotive and high tech manufacturers’ production systems. The effects were felt throughout Europe and North America as production was either slowed or even brought to a complete halt through lack of components. The year before, the Icelandic ash cloud closed European air space, leading to air cargo backlogs at airports throughout the world.

Although individual events such as this happen only rarely, the chances of similar supply chain disruption occurs much more frequently. Take into account for example terrorist attacks, industrial disputes and blockades, piracy, meteorological disturbances, environmental disasters and as we’ve seen, even volcanoes, and a pattern builds of disruption ranging from the localised and short term to global and catastrophic.

The risks do not stop there. Given the present economic environment, it is not unimaginable that the air and shipping sectors might suffer some sort of meltdown in the not-so-distant future. If the economy slumps in 2012, many carriers could go bankrupt possibly producing a crisis of supply. With governments creaking under high levels of debt there might not be the same willingness to bail some of them out a second time round. The market no doubt would eventually sort this out, but there could well be disruption for shippers in the intervening period.

Identifying these risks, mitigating them as well as developing a robust response is one of the key projects in which the Logistics and Supply Chain Agenda Council is involved in 2011/12. Only by highlighting the potential impact of these risks will manufacturers and retailers start to fully realise the exposure of their business.

*John Manners-Bell is the Editor and CEO of Transport Intelligence. He is a member of the World Economic Forum Global Agenda Council on Logistics & Supply Chain and attended the Summit on the Global Agenda 2011 held in Abu Dhabi, United Arab Emirates 10-11 October.