Last week, Japan's Ministry of Finance reported that Japan's exports declined 11.3 percent year-over-year for May, partly because of supply chain disruptions caused by the Kumamoto earthquake. This is just one recent example of the repercussions a natural disaster or other disruption event can have on an entire supply chain. It also highlights how important it can be to identify where supply chains are especially vulnerable to risk.
To help companies with that evaluation, the business-risk consulting firm FM Global recently released its third annual Global Resilience Index, which ranks the resilience of 130 countries and territories in regard to supply chain disruption. But while it's interesting that Switzerland was found be more resilient than Norway, can executives actually use this information to help design supply chains that are less subject to disruption?
According to Eric Jones, operations vice president, global manager and business risk consulting at FM Global, the answer is yes. "The FM Global Resilience Index helps companies learn more about potential supply chain-related vulnerabilities in regions or specific countries where they do business today or where they might invest in the future," Jones wrote in an email. "It can help trigger any preventive measures one requires to ensure a company's prosperity over the long term."
Specifically, the index can help companies select locations for new sites and facilities and evaluate established supply chains, says Jones. It can also help companies evaluate potential suppliers and identify how vulnerable their customers are to risks.
The Index includes assessments for nine factors in three different categories: economic, risk quality, and supply chain. Economic factors include gross domestic product, political risk, and vulnerable to an oil "shock." Risk quality factors include exposure to natural hazards, the country's commitment to reducing natural hazard risks, and the country's commitment to fire-risk improvement. Finally, the three supply chain factors include control of corruption, infrastructure, and local supplier quality.
"Using the nine key drivers measured in the index, supply chain executives and risk managers can identify specific risks that may be associated with a country that could impact a current or prospective supplier," Jones said. It could then take steps to mitigate that risk, such as contracting with an additional supplier in another region or working with that supplier on contingency plans.