Improving Supply Chain Resiliency in China and Beyond

Morgan O'Rourke


February 1, 2012

Given the interconnected nature of business today, it should come as little surprise that supply chains have become ever more sensitive to disruptions. In fact, 85% of companies reported at least one supply chain disruption over the last year, while 29% reported more than six, according to a survey sponsored by Zurich Financial Services and conducted by the Business Continuity Institute.

More than half of respondents cited adverse weather (such as flooding, windstorms and snow) as the main cause of supply chain problems, followed by unplanned IT and telecommunications outages, transportation network disruptions, and earthquakes/tsunamis, which is understandable given last year's earthquake activity, particularly in Japan.

But while the impact of the Japan earthquake was certainly profound, it reminded many companies that the supply chain effects of a similar incident in China could be even worse. According to a study by FM Global, 86% of companies surveyed say they are more reliant on China as part of their supply chain for their key product lines than they are on Japan (43%). And in the wake of the earthquake and tsunami, almost all companies (94%) are now concerned about natural disaster-related supply chain disruptions in China.

As a result, companies are starting to employ a variety of strategies to mitigate the supply chain risk of natural disasters in China. Among these solutions, 70% of companies plan to increase alternative sourcing, 65% are looking at increasing collaboration with suppliers on mitigating risk at their locations, and 61% are considering implementing a more robust risk management process.

"The findings in this report point to how interdependent risks can have severe financial consequences in global supply chains," said Dr. Howard Kunreuther, professor of decision sciences and public policy at the Wharton School at the University of Pennsylvania. "Firms need to undertake proactive measures, such as finding several sources of supply so that they are not dependent on one company that may be adversely affected by a natural disaster. There needs to be a realization that the process of developing a resilient supply chain takes time."

These and other improvements will help companies avoid the consequences of a supply chain disruption. But perhaps more importantly, by looking at these improvements as part of an overall business strategy, companies can use their newfound supply chain resiliency as a competitive advantage that will allow them to gain market share even during the turmoil following a disaster.

Morgan O’Rourke is editor in chief of Risk Management and director of publications for the Risk & Insurance Management Society, Inc. (RIMS)