Respect Your Supply Chain

by Caroline McDonald | December 1, 2013 at 6:00 am

Even after major flooding in Thailand shut down nearly 1,000 factories and impacted global production, many companies still don’t understand the extent of their supply chain exposure, said FM Global. According to the report “Prepare for the Expected: Achieving Business Resiliency in an Era of Severe Natural Disasters,” Thailand’s flooding is not the only supply chain worry. China’s government has yet to publish detailed flood maps, but many factories are concentrated in areas that may be flood-prone. Outsourcing to suppliers in such regions should be done with caution, as exposures can be significant. FM Global Executive Vice President Thomas A. Lawson observed that a number of companies “don’t know if they have a $10 million exposure with a supplier or a $100 million exposure.” Lawson also urged CEOs to take natural disaster risks more seriously. The huge financial losses that can arise “should make even a 1% threat a top-of-the-agenda item.” He added, “If you choose to be in a flood zone, or rely on suppliers who are, you should be prepared to accept that risk and eventually face the consequences.” How do companies avoid the risk? Lawson’s advice is simple: “If you don’t have to build or locate in a flood zone, then don’t.”