Building supply chain resilience

At the World Economic Forum Annual Meeting in Davos 2012, United States Secretary of Homeland Security Janet Napolitano announced the first US National Strategy for Global Supply Chain Security. With a clear determination to launch this strategy to a global audience through the Forum, it was a marked shift from the post-9/11 framework focused on addressing terrorist threats to the supply chain. Having worked on these issues at the Department from 2003-06, I was struck by the strategic change in direction, one that now moves towards building resilience across global supply chains.

Secretary Napolitano pointed to a new World Economic Forum report as an endorsement for this strategy switch – the Supply Chain and Transport Risk Initiative’s report on New Models for Addressing Supply Chain Risk (PDF), which paints a clearer picture of the most likely disruptions to global supply chains. Security issues figured in our risk assessment, but when it comes to the single most important potential disruption to global supply chains, natural disaster actually tops the list.

Why is this important? Because in the final analysis, what matters most is not a specific risk to the global supply chain–be it extreme weather, corruption or geopolitical conflict–but a focus on the factors that build resilience into a very complex system that must recover from a variety of risks and disruptions that are too big for one organization to handle on its own.

Based around the topic of building resilience, the New Models report listed a series of recommendations for governments and businesses, to work on both independently as well as jointly. A recurrent theme was collaboration to improve network risk visibility, including the development of standardized risk assessment tools, and creating a trusted network of suppliers, customers, competitors and government focused on risk management.

Discussions at Davos 2012, which included Secretary Napolitano, prompted work into a second phase around supply chain risk and resilience. Through a series of workshops over the past few months, we have engaged more than 200 experts in supply chain risk. Together we are developing a new set of recommendations that will help frame a stronger public-private collaboration around a blue print for risk resilience. A key component is to explore how we can improve the environment for data and information sharing. Our aim is to improve risk assessment as well as identify early warning “weak signals” across complex supplier and sub-supplier networks.

The landscape of global disruptions has changed. Globalisation and production concentration may have boosted supply chain and transport efficiency, but they have also changed organizational risk profiles. In other words, the same lean, elongated supply chain that minimizes production cost also exposes unforeseen external vulnerabilities that can bring entire supply chains to a halt with one acute shock to the system. It is important to recognize the implications of business efficiency measures and the inadvertent potential to increase a company’s risk profile.

But despite its name, the Supply Chain Risk Initiative is not about risk itself; it’s about understanding risk for the purpose of developing resilience.  The improved risk assessment and mitigation practices can increase market growth, minimize financial loss, and improve supply chain efficiency in the face of illicit trade and counterfeit goods, piracy, cyber-terrorism, and even natural disasters. The Initiative will bring together Asia-based business and governmental experts for a private session at the upcoming Annual Meeting of New Champions in Tianjin, China, and continue collaboration by hosting a workshop in Hong Kong in October. This will complement our earlier activities in Europe and North America, and promote a broad, global view for continued collaboration. As risks are global in scope so have to be our efforts to build resilience.

By Elaine Dezenski, Senior Director, Head of Supply Chain and Transport Risk Initiative

Image: A man walks in a shipping container area at Yangshan Port of Shanghai, China. REUTERS/Aly Song.