It's early Sunday morning, and today is the end of daylight saving time, which gives me one hour extra time to blog while the wife gets a well-deserved extra hour of sleep. Sipping my coffee and browsing the Internet for anything supply chain risk, I came across an article in the British newspaper The Telegraph, which said that Britain could miss out on the full economic benefits of hosting the 2012 Olympics because companies are not prepared for the Games and have mixed views about its impact.To me, more interesting than the disbelief in business opportunities, though, was the disbelief in any impact on their supply chain from the Olympics.

A new Deloitte report found that over two thirds of companies in the UK expect no impact on their operations from the Olympics. Rick Cudworth, head of business continuity and resilience at Deloitte, said: "Many of these businesses need a wake-up call. They operate in service industries where people are vital, where the supply chain is time critical, where having products on the shelf or food to serve in restaurants is essential to their daily business. Thinking through the impacts that an Olympic-scale event could have on logistics, the supply of goods and the movement of staff is essential."

Scaremongering? Perhaps. I was living and working in Salt Lake City during the 2002 Winter Olympics, and while for a large portion of the city it appeared to be business as usual, for other parts the the impacts were severe, particularly because of the beefed-up security so shortly after 9/11. And there probably won't be any less security this time around. Security restrictions and cordoned-off areas leaving businesses stranded aside, supply chain logistics challenges will have many managers scratching their heads in 2012. I do believe that much.

In the Deloitte survey, although only half of businesses said they expect an increase in demand, 20pc expected a strong increase. Also, a quarter of the 200 large companies surveyed – which employ more than 500 people – have appointed an individual or group to assess the potential opportunities and disruptions from the Games.

Is Britain still unprepared? After all, they do have a Civil Contingencies Act and the BS 25999 Business Continuity Standard, something many countries still lack. They have the tools, but are they simply oblivious to their value in securing business operations?

Nigel Bourne, the CBI's London director, warned there needs to be an "education" with businesses about how to financially benefit from the Games and prepare for potential disruption. He said that demand on London's transport network during the six-week period that the Olympics and Paralympics are held will be "far greater than anything we have seen".

I was in London two months ago, and even on a normal weekday the strain on the transport system seemed to be quite heavy. That said, it all went very smoothly, even in the midst of strikes over staff cutbacks.That was a one-day event, but the Olympics will run for weeks on end.

 

The London Olympics are still 18 months away, enough time for planning ahead, and for considering the negatives and the positives of such an event. Am I scaremongering? Hopefully not.

Perhaps I am biased. As someone who writes regularly about supply chain risk, both here on the Supply Chain Expert Community and on my own blog, I belive that supply chain risk should, and to a large degree really is, among the top priorities for many businesses. Apparently not, if I am to believe the Ernst & Young Business Risk Report 2010. In their sector-wide view of the risks facing businesses across the globe, supply chain risk is just "below the radar" on 12th place. Why supply chain risk isn't raking more prominent, I can only speculate about. I would imagine that global firms would be particularly concerned with their global supply chain risk management. Perhaps the 70 industry executives that were interviewed for the report have never heard of supply chain disruptions? Nonetheless, the 48-page report is packed with useful information, and albeit supply chain risk is not mentioned explicitly, it is not hard to read supply chain issues into the top ten risks that are listed.

 

1. Regulation and compliance (2)

 

In a stable economy, this would perhaps not be so much to worry about, but in the current economic climate, where different governments in different countries suddenly propose new and different regulatory responses to battle the credit crisis, I can see that this is a major risk. The whim of government regulations suddenly changing has always been a risk for companies with global supply chains.

 

2. Access to credit (1)

 

With many companies still explicitly or implicitly relying on government backup, and governments themselves running into deeper and deeper sovereign debt, this is a vicious circle that could unleash a second credit crisis. As with #1, this may affect global supply chains.

 

3. Slow recovery or double-dip recession (No change)

 

The financial crisis has abated, but a fiscal crisis has emerged in its place. While this is a macro risk, on a micro level it may still affect individual firms. Supply chain flexibility and keeping all options open is the key mitigation measure here.

 

4. Managing talent (7)

 

Baby boomers’ retirement is now posing the most worrying threat to skill sets in the labor force. I never thought about it that way. So far, much of the concerns, at least in many European countries, and here in Norway, has been how to finance the social welfare and pensions of these retirees. A lack of skilled workers to replace those who retire has so far not been that much of an issue. Nonetheless, even supply chains need skilled people.

 

5. Emerging markets (12)

 

With emerging economies dominating global growth I would not be surprise to see a shift in global supply chains becoming more regionally or even locally oriented towards their "home" market rather than overseas export. This would change the supply chains of global companies entirely.

 

6. Cost cutting (No change)

 

The biggest cost concerns are no longer related to operating costs, but to commodity costs, which in turn of course will affect supply chains. When operating costs have been cut to the bone, where do you start saving when raw material prices start to rise? Do you have alternative supplies? And how will your supply chain fare when you engage in a price war with a competitor in the aforementioned emerging markets?

 

7. Non-traditional entrants (5)

 

The financial crisis, so the report says, has increased risk aversion and made it harder to raise capital. This has weakened emerging firms that sought to expand on the back of high leverage. This also means that now is the time for traditional or well-established firms to strengthen their supply chains by investing in their supplier relationships.

 

8. Radical greening (4)

 

Is the environmental movement in supply chains dead? Why has this "risk" now slumped 4 places since last year? Perhaps the economic downturn has dimmed the spotlight a bit, but I am sure that the pressure towards sustainable supply chains will continue. Then this is not a risk, but it will be an opportunity.

 

9. Social acceptance risk and corporate social responsibility (New)

 

This, I believe, will rise to even more prominence in 2011. Is it a risk? As with sustainable supply chains, socially responsible supply chains ought to be embraced as an opportunity. ISO 26000 on social responsibility is soon to be finalized and will of course affect the supply chain of any company that decides to implement this standard.

 

10. Executing alliances and transactions (8)

 

Mergers and acquisitions are perhaps not taking place that much following the recent credit crunch, but supply chain collaborations have their own risks, and so they should be on this list.

 

...

 

This is the only risk that explicitly mentions supply chains:

 

12. Maintaining infrastructure

Numerous sectors now depend on optimized global supply chains. Infrastructure failures could threaten the sourcing networks, in which numerous companies have invested heavily.

 

This I find interesting. Supply chains are seen as infrastructure-related risks only? While this is definitely true to some degree, in my opinion it makes supply chains a lot less important than I think I are. That said, this second below-the-radar risk has also risen significantly from 2009, from 20th to 12th place, and I do hope to see it in the top 10 in 2011, in line with what the World Economic Forum said their 2008 Global Risk Report that global supply chains are an invisible business risk. Well, it'll be interesting to read the Ernst & Young Business Risk Report 2011 to see what has changed.

 

Meanwhile, you can read the full report and download a pdf-version from ey.com: Ernst & Young Business Risk Report 2010

Perhaps logistics is a wider and more comprehensive term than supply chain management? I may be leaning towards that now, after reading a recent paper developed by a a working group set up by the German Bundesvereinigung Logistik, BVL, the nonprofit German Logistics Association. Here, a selection of no less than eight academics from Germany describe the five cornerstones of logistics as an academic discipline, and discuss how logistics in fact can act as an integrative platform over a wide range of different issues at the micro meso and macro level. I never thought of that before.

 

The mandate of the working group was to "develop a framework of understanding for logistics as an academic discipline" in order to promote "the depth and relevance of the science of logistics among those outside the discipline" and to serve as "a point of reference for continuing in-depth discussions about the science of logistics". That is certainly a bold goal statement. Can the paper hold what it promises?

 

The article starts off with a definition or description of  what logistics entails as a scientific discipline:

 

Logistics is an application-oriented scientific discipline. It models and analyses economic systems as networks and flows of objects through time and space (specifically goods, information, moneys, and people) which create value for people. It aims to supply recommendations for action on the design and implementation of such networks through accepted scientific methods. The scientific questions of the discipline relate primarily to the configuration, and organisation of these networks and to the mobilisation and control of flows. Its ultimate goal is progress in the balanced achievement of economic, ecological and social objectives.

 

This definition is then underpinned by five cornerstones:

 

- Flows in networks
- Levels of aggregation
- Interdisciplinarity
- Unity within variety
- Real-world orientation

 

The first cornerstone are logistics flows, and since the flows work at different levels and with different objects (goods, information, money and people), scientific inquiry in logistics can come from many perspectives: technical, organizational and social. Second, levels of aggregation refers to the notion that logistic flows (and networks), repeat themselves at different levels: in a company, between companies, between industries, between countries etc., going from microeconomics to macroeconomics. This is a view very similar to the one employed by Helen Peck in her article on drivers of supply chain vulnerability. Number three, interdisciplinarity, refers to the notion that logistics is highly application-oriented, and consequently is not only borrowing methods from other  disciplines (e.g. mathematics, engineering, economic science, social  sciences) but also developing them further. Which brings up the fourth, unity within variety, implying that logistics should integrate and condense these different disciplines, something I find a very bold statement. Fifth and final, what makes logistics exciting and interesting is that it is not abstract, but hands-on. And because it is so hands-on, maybe that is why logistics is misunderstood as not scientific enough? Judging by this sentence it may very well be:

 

The understanding of practical logistics as a generally reactive instrument for the fulfilment of defined market requirements is still widespread. In contrast to this narrow interpretation, it is of fundamental importance to understand and/or continue to develop logistics as a proactive organisational activity.

 

I think we're still a far way from viewing logistics as having such a wide scope as the BVL would like it to have. That said, I am all in favor of logistics taking a turn in that direction. Perhaps it really is time to rethink my view of logistics versus supply chain management. Logistics is the better term after all. Well, in my opinion it is. Not that I plan to change the name of my blog from Supply Chain Risk to Logistics Risk, though. For the time being it is still "Supply Chain Risk - explained, explored, researched and reviewed". Maybe I will change it in the future, but not just yet.

 

Reference: Delfmann, W., Dangelmaier, W., Günthner, W., Klaus, P., Overmeyer, L., Rothengatter, W., Weber, J., & Zentes, J. (2010). Towards a science of logistics: cornerstones of a framework of understanding of logistics as an academic discipline Logistics Research, 2 (2), 57-63

 

An extended version of this post and a link to the original German version of this paper can be found on my blog @ Logistics risks - the new science?

 

If you wonder what is a good place to relocate to and what place that is perhaps not so good, AON has done the research for you. In their most recent highlighting of global risks is a People Risk Map. Along with the accompanying report it provides “a comparative overview of risks associated with recruitment, employment and relocation  in 90 cities worldwide. These ratings enables companies to compare risk by location, identify the reasons for the risks, and determine actions to address these risks.” So they say, but is it as good as it sounds?

 

In 2009 AON published the political risk map, identifying, among other things, where supply chain risks are on the The map also included a Commodity Crunch Exposure Matrix, which identified the countries most vulnerable to political instability in 2009 if commodity prices should continue to fall.

 

This year AON is taking a closer look at globalization from an organizational point of view, underlining that outsourcing or going global involves people and that people (or the lack of people) may come at a cost. Having offices and plants worldwide involves three types of people risks, according to AON:

 

  • Risks associated with recruitment
  • Risks associated with employment
  • Risks associated with restructuring, retirement, and retrenchment

 

The AON People Risk Map identifies 25 critical factors impacting People Risk by location. These 25 factors are clustered into five areas of People Risk:

 

  • Demographic risks are those associated with labor supply, the economy and the society.
  • People risks associated with Government Support are those where government policies and practices either help or hinder the management of people in that location.
  • Education risk factors seek to measure risks associated with finding qualified professionals in a location.
  • Talent Development risk factors look at the quality and availability of recruiting and training resources.
  • Employment Practices risk factors seek to measure the risks associated with employing people in a given location.

 

The individual factors are listed below:

aon-2010-people-risk.jpg

Used on a world map, people risk displays like this:

aon-people-risk-map.jpg

 

The least risky city, believe it ot not, is Toronto, Canada. The worst, perhaps no surprise, is Dhaka, Bangladesh.

aon-people-risk-city-ratings.jpg

The report is well worth reading and does provide some valuable regional insights, where the results are discussed and broken down in more detail for Europe, the Americas, Asia Pacific, the Middle East and Africa. While the map and the report on one hand are an obvious and clever marketing tool for AON's consulting services, I also believe that they can provide some firsthand information for a company seeking to globalize its operations. In my opinion the AON map and report perfectly complements the Global Risk Reports from the World Economic Forum as a risk management primer for busy executives as well as academics seeking in-depth analysis.

 

As global economic growth continues to shift from the developed markets to the emerging markets, companies are seeking more localization in their people strategy to capitalize on the faster growth opportunities in these markets. This means companies will want to increase their presence by hiring talents from, and deploying talents to, these emerging markets. The better a company understands the people risks related to each local market, the better equipped they will be to realize the business opportunities.

So says AON. For more information on the map and the report, visit my original post on Risky cities - want to work there? or go straight to the AON People Risk download section.

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