As U.S. and Canadian businesses plan to expand their business overseas this year, chief among executive’s concerns are supply chain failures, data breaches and political instability.
Indeed, the Chubb Group of Insurance Companies recently completed a survey, which found that 52 percent of the participating companies plan to increase its overseas activity in 2014. Respondents to the 2014 Chubb Multinational Risk survey identified the top overseas business threat as supply chain failure 19 percent. A data breach/cyber event (15 percent) was ranked second, and government/regulatory investigation and political instability were tied as the third (13 percent) most significant threat. In a sign of the times—and perhaps with the Japanese tsunami, Hurricane Sandy and floods in Thailand in mind—the survey respondents named natural catastrophes as the fourth largest threat to supply chains.
As both large and small companies seek new business opportunities abroad, their supply chains are increasingly confronted by a number of potential threats, says Kathleen Ellis, senior vice president and worldwide manager for Chubb Multinational Solutions. Consequently, as they expand their international business operations, companies need to take a more holistic or global approach to managing risk, she says.
Not surprisingly, in spite of their growing concern regarding supply chain failure, only 56 percent of the survey’s respondents indicated their company has a business continuity plan that addresses overseas risks, and 22 percent of the companies that do have a plan have never tested it, according to survey results. Of course, larger companies are much more likely to be prepared for overseas business interruptions than smaller companies, the results indicate. That may perhaps be because while risk management plans typically cover at least a company’s critical Tier 1 suppliers, large companies are able to more broadly cover their suppliers through the second, third and fourth tiers.
“The lack of business continuity plans and testing is disturbing,” says Ellis. “Companies are left exposed to significant supply chain failures and associated business interruption costs that can undermine their financial results and stability. It’s equally important for companies to assess whether their overseas suppliers and vendors also have up-to-date, well-tested business continuity plans.”
Another recent survey also examined risk management programs. The government shutdown last fall offered an opportunity for the Institute for Supply Management (ISM) to measure the effectiveness of manufacturers’ supply chain risk management programs, an article on IndustryWeek reports. While only 16 percent of the companies studied reported being affected by the shutdown, 85 percent of those which activated their risk management plans say they performed well, says Paul Lee, research director of the ISM.
According to ISM, the strategies most frequently included in a risk management plan are to find alternate suppliers, talk with critical suppliers, qualify more suppliers, buy extra suppliers, and talk with major suppliers. What’s important to remember, is that while these strategies are critical in the case of a major disruption, they also may pay significant dividends on a day to day basis.
“As supply chains continue to globalize, extend and increase in speed, the opportunity for something to go catastrophically wrong increases geometrically,” says Simon Ellis, practice director, global supply chain strategies with analyst firm IDC Manufacturing Insights, in the IndustryWeek article. “But it’s not just the possibility of one huge event that manufacturers need to prepare for—risk management also includes monitoring the hundreds of little daily disruptions that taken together can seriously impact the health of your supply chain.”
Is your company planning international expansion, or additional expansion? If so, how extensive is your risk management program? Does it extend beyond key suppliers or partners?