Short on Supply, Long on Risk

Jared Wade


November 1, 2010

Since the global economy went into the tank in late 2008, many companies have significantly cut back their supply inventories. This was understandable -- logical even. Why pay for the extra storage when consumer demand was faltering?

Now, however, those businesses that cut costs on supply may be unable to adjust as customers start buying again. In fact, a recent study conducted jointly by researchers from MIT and Georgia Tech University suggests that companies that experience a supply chain disruption suffered between a 33% and 40% decline in stock price compared with industry peers over a three-year period.

"Historically, disruptions can lead to 7% lower sales and 11% higher costs," said Linda Conrad, director of strategic business risk at Zurich Global Corporate. "Combined with the increased costs of securing additional supply at the last minute, it's not surprising that approximately 40% of companies with extended disruptions never recover from supply chain disruption."

The lesson here? Much like it is hard to turn around a battleship midstream, it seems it is equally difficult to turn around the cargo ships that deliver goods. And it seems as though those companies that remain unprepared to adjust at the right time might be left out to sea.


Jared Wade is a freelance writer and a former editor of Risk Management.