As companies expand their supply chains and add locations, partners and suppliers around the world, their supply chains become more vulnerable to risks such as natural disasters, local corruption and political turmoil—including terrorism. However, by working to identify and mitigate supply chain risks, companies can, in turn, strengthen supply chain resiliency.
“Resilient supply chains give businesses a distinct advantage by protecting their operational integrity, revenue stream, market share and shareholder value,” says Bret Ahnell, executive vice president at commercial property insurers FM Global. “A fragile supply chain, on the other hand, often harms the company involved, sometimes for the long term.”
One challenge is that supply chain risks and their severity vary widely from country to country. To help executives identify vulnerabilities of businesses in various countries, FM Global has created the 2016 FM Global Resilience Index, a global ranking of countries’ business resilience to supply chain disruption. It ranks 130 countries and territories according to nine factors that may increase vulnerability of a business in those regions. They are: economic productivity, political risk (including terrorism), oil dependency, exposure to natural hazards, quality of natural hazard risk management and fire risk management, control of corruption, quality of infrastructure and strength of local suppliers.
Interestingly, Switzerland is ranked in first place due to its extensive and efficient infrastructure, quality of its local suppliers, strong economic productivity and ability to weather oil fluctuation—such as a sudden shortage, disruption or price hike. Norway is ranked second because it achieves particularly high scores for its control of corruption and for its economic productivity.
Ireland, which has continued to steadily move up the Global Resilience Index rankings since 2013, is ranked in third place this year. Contributing strongly to Ireland’s position is that its commercial and industrial facilities have the lowest exposure worldwide to natural hazards, as well as a high quality of risk management across both natural hazards and fire risk. Furthermore, Ireland has a very low vulnerability to oil shock since its economy isn’t heavily dependent on oil consumption.
Rounding out the top 10 in the index are Germany, Luxembourg, Netherlands, the central United States, Canada, Australia and Denmark. The United States actually is segmented into three regions to reflect disparate natural hazards exposure. While the central U.S. was ranked 7th in the index, U.S. Region 1, including much of the East Coast, is ranked 11 in the index and U.S. Region 2, primarily the Western U.S., is ranked 21.
The lowest-ranked country in 2016 is Venezuela (ranked 130) for the second year in a row. Faring slightly better are, in ascending order, the Dominican Republic, Kyrgyz Republic, Nicaragua, Mauritania, Ukraine, Egypt, Algeria, Jamaica and Honduras. Venezuela’s position at the bottom of the FM index reflects its exposure to natural hazards of wind and earthquake, perceptions of lack of control of corruption and poor infrastructure, as well as ill-perceived local supplier quality.
“As supply chains become increasingly global, complex and interdependent, their effective management becomes more challenging,” says Dr. Deborah Pretty, principal at analytics and advisory firm Oxford Metrica, which produces the Global Resilience Index for FM Global. Information from the index can help executives “better assess supply chain risk associated with their physical investments around the world, and reach better decisions as they site property or establish new supplier relationships,” she says.
What are your thoughts on evaluating countries to gain a better understanding of the potential for partners, suppliers or even your own company’s locations to experience supply chain disruptions? Do you use this type of information to improve supply chain resiliency?