A threat to globalization?

Financial crises. Volatile fuel costs. Political upheaval. Global warming. These are only a few of the hazards keeping supply chain managers up at night.

That supply chains are vulnerable to a host of threats is not news. For the last several years, nearly every supply chain- or logistics-related conference has featured presentations on supply chain resilience, adaptability, or agility. It is not pessimism to assume that in a highly complex supply chain, something will go wrong somewhere at some time and that preparation for such an eventuality is essential.

The vulnerability of supply chains and what that could mean for globalization has even reached the pages of Foreign Affairs, a journal that usually focuses more on issues of war, peace, and diplomacy than on business concerns. In an article titled "Freight Pain" in the November/December 2008 issue, economist Marc Levinson argues that high fuel prices and the diminished reliability of global transportation networks will force U.S. businesses to source closer to home and hold larger inventories. Tougher security measures and requirements for reducing carbon footprints will only add to the pressure. The result will be higher costs and a slowdown in the growth of globalization, says Levinson, who has also authored a book on the history of containerization.

Supply chain executives are acutely aware of these risks, according to a recent study published by the global consulting giant McKinsey & Company in its business journal, The McKinsey Quarterly. The survey of corporate-level and operations executives in 49 countries revealed a consensus that supply chain risk is rising sharply. "Executives point to the that many companies are doing the results of the survey suggest financial volatility as top energy prices, and increasing greater complexity of products and services, higher factors influencing their supply chain strategies," the report said.

What is surprising is that precious little to mitigate or prepare for those risks. "Despite the importance respondents place on these trends," the report says, "relatively few say that their companies are acting on them."

Given the severe challenges that businesses around the world face right now, their lack of action could be discouraging news. If we fail to manage these and other risks, could Levinson's dire predictions come true? Will we see companies retreat from their global supply chains?

I suspect economies today are too interconnected to derail globalization for long. But those companies that choose to imitate Nero and merely fiddle while links in their supply chains weaken will pay a heavy price.