Zurich Financial Services Group and the Business Continuity Institute conducted a survey among 559 organizations in more than 62 countries, covering 14 different industries, to look at the impact of this year’s natural and manmade occurrences that have caused supply chain disruptions worldwide. Overall, 85% of the companies reported at least one supply chain disruption. Twenty percent of the occurrences were attributed to the earthquakes or tsunamis in Japan and New Zealand; fifty-one percent were attributed to adverse weather; and forty-one percent were attributed to IT or telecommunications outages.
- The earthquakes and tsunami experienced in Japan and New Zealand this year, affected 20 percent of responding organizations, which were headquartered in 18 different countries.
- Cyber attacks became a top three source of disruption in the financial services sector.
- Supply chain incidents led to a loss of productivity for almost half of businesses along with increased cost of working—38 percent of respondents—and loss of revenue—32 percent of respondents.
- Longer term consequences of disruption in the supply chain included shareholder concern, 19 percent of respondents, damage to reputation—17 percent—and expected increases in regulatory scrutiny—11 percent.
- For 17 percent of respondents the financial costs of the largest single incident totaled a million or more Euros. This figure almost doubles to 32 percent where less resilient supply chains are evident in the research.
- Loss of talent or skills rose from 14th place in 2010 survey to 6th place in 2011. This represents a warning that lay-offs among supply chain partners is leading to increased disruption, the report says.
- Seventy-four percent of respondents either strongly agreed or somewhat agreed with the proposition that outsourcing and just-in-time/lean strategies were making their organizations more vulnerable to supply chain disruption.
In essence, globalization trends of outsourcing and “just-in-time efficiencies” are making supply chain relationships more vulnerable to disruption. Many global enterprises are profiting from outsourcing services and lean manufacturing costs in countries with lax regulatory requirements, which have been catastrophe prone this year. As global economies of scale become more and more attractive, it is important for businesses to understand their critical supply chain risks and exposures. Businesses should also obtain adequate insurance and establish reliable business continuity plans that rely less on insurance protection and more on resilient response planning.
In my blog post, Understanding Supply Chain Exposures – Understanding Business Interruption Claims, Part 76, I noted that risk managers should not stop at acquiring the best coverage available for a dependent businesses or service. They should also have a good back up plan to keep the supply chain running through a first party coverage claim. Risk managers must also understand the bottlenecks and supply chain problems that will likely occur in the midst of a catastrophe and have a plan that will keep the chain moving. While many feel that risk management is an unnecessary expense, it is actually an investment on market competitive advantage that guarantees higher profits, even in a futuristic dystopian world.