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Supply Chain Risk: Preparing for the Unforseen

Last modified: June 21, 2016

A company’s supply chain is a crucial aspect of their success, and when Mother Nature gets in the way of them, it can cause serious problems. The earthquake in Kumamoto, Japan, in April and the landslides in Sri Lanka that buried three villages in in May were but two examples of unforeseen disruptions that could affect companies’ supply chains, and has brought the issue of supply chain risk and natural disasters back to the forefront.

Types of events that pose a supply chain risk

When it comes to preparing for a supply chainsupply chain risk and natural disasters risk, it’s important to first identify some of the most common events and occurrences that may affect a company’s supply chain.

  • Natural: Natural disasters, such as earthquakes, floods, tornadoes, and more are a cause of major supply chain risk, causing some supply chains to come to a complete standstill. The very nature of these events makes them difficult to predict, but that shouldn’t stop companies from preparing for them and having contingency plans in place.
  • Political: After a natural disaster, companies may be faced with dealing with the political fallout. Or, sometimes, political upheaval in a country is the source of the supply chain disruption. Avoiding supply chain risk by taking local laws into consideration is crucial.
  • Economic: The world has experienced many economic crises lately – from instability to all-out collapse. Whether it’s inflation, unstable fuel prices, financial issues at a supplier, or politically-charged economic events, a company’s supply chain risk assessment must include a look at potential economic factors

Supply chain risk in a global world

With so many supply chains relying on multiple points for their production, manufacturing, and distribution, a disaster happening at any of these locations could mean severe consequences for the entire supply chain. Willy C. Shih, a professor of management practice in business administration at Harvard Business School, has stated, “A Wii has a chip designed by IBM, which may have been fabbed in New York, tested in Taiwan, stored in Hong Kong, aggregated in parts, and sent in kits to China for assembly.” Any type of disruption in a multi-location supply chain such as these can mean major delays for companies all over the world.

Mitigating supply chain risk

So, how can companies be as prepared as possible and minimize their supply chain risk in the face of natural disasters? Working with a third-party logistics company is one answer. Companies that focus on optimizing logistics and work with multiple clients have seen and experienced a variety of these events first-hand, and have the knowledge, expertise, and systems in place to reduce supply chain risk as much as possible.

For example, when the Kumamoto earthquake hit, Flash Global immediately alerted affected clients, and began working on solutions to get operations up and running as quickly as possible. By using their local expertise and providing awareness, transparency, and communication along all aspects of the issue, Flash was able to reduce the supply chain risk of its clients as much as possible.

When it comes to supply chain risk, the more prepared a company is, the better of it will be in the long run. Read more about our supply chain solutions here, or connect with us to find out how we can help your company.

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