When companies evaluate where they should locate operations, executives typically consider factors such as labor supply, cost of labor, taxes, condition of infrastructure and regulatory environment. However, the risk of supply chain disruptions—whether caused by natural disasters, extreme weather conditions, geopolitical strife, or other factors—should be evaluated as well.
It also is increasingly important to consider that risk. Indeed, global executives report that not only are supply chain disruptions growing in frequency, they also are having a larger negative impact. For instance, nearly half of the executives taking part in a Deloitte survey said the frequency of risk events that had negative outcomes has increased over the last three years. What’s more, more than half of them said supply chain disruptions have become more costly over the last three years.
The challenge is to determine how a country’s susceptibility to supply chain disruption can be measured. To address that need, commercial property insurer FM Global recently introduced what it calls the 2014 FM Global Resilience Index. The online, data-driven tool ranks the business resilience of 130 countries so executives are better able to assess and manage supply chain risk, and in turn, prioritize supply chain risk management and investment efforts.
“Natural disasters, political unrest and a lack of global uniformity in safety codes and standards all can have an impact on business continuity, competitiveness and reputation,” says Jonathan Hall, executive vice president, FM Global. “As supply chains become more global, complex and interdependent, it’s essential for decision makers to have concrete facts and intelligence about where their facilities—and their suppliers’ facilities—are located.”
I was interested to see that Norway, Switzerland and Canada top the list of nations most resilient to supply chain disruption. At the other end of the spectrum, Kyrgyzstan, Venezuela and the Dominican Republic were found to be least resilient to supply chain disruption. The country making the most improvement since 2013 is Bosnia and Herzegovina, which climbed 19 places due to improvements in the country’s political risk and in the quality of local suppliers. One of the countries quickly getting riskier is Bangladesh, which fell significantly due to declining quality of both natural hazard risk management and fire risk management.
Two countries I think most executives would be interested in checking on are the U.S. and China, both of which are divided into three separate regions because the geographic spread of both countries produces significantly different exposure to natural hazards. All three regions of the U.S. rank in the top 25 and China’s regions rank 61, 66 and 75. China’s weakest region, which includes Shanghai, ranks particularly low as a result of its high risk stemming from acute natural hazards, according to the index.
FM Global commissioned analytics and advisory firm Oxford Metrica to develop the rankings to promote intelligent discussion about building resilience and avoiding supply chain disruption. The data comes from a combination of independent third-party sources and FM Global’s RiskMark benchmarking algorithm, which measures the risk quality of more than 100,000 insured commercial properties worldwide.
Wildfires in the Western U.S., hurricanes in the Eastern U.S., flooding and earthquakes in recent years in Thailand and Japan, and continued geopolitical turmoil in other parts of the world are all significant factors to consider. As companies place more emphasis on shifting operations to be closer to consumers, it certainly makes sense to evaluate the potential for supply chain disruption in various countries.
Does your company evaluate the potential risk of supply chain disruption in countries where it—and its partners—conduct business?