World Economic Forum calls for better risk management in supply chains

The World Economic Forum, an independent international organisation committed to improving thestate of the world, highlighted in its latest report the lack of risk management in the supply

Produced in cooperation with the global consulting company Accenture, the report “New Models forAddressing Supply Chain and Transport Risks” identifies the most significant threats to supplychains and transport networks including natural disasters, conflict and political unrest, suddendemand shocks, export/import restrictions and terrorism.

The World Economic Forum stressed that trends such as globalisation, lean processes, mass traveland the geographical concentration of production have made supply chain and transport networks moreefficient, but have also changed their risk profile.

The survey is based on input from executives participating in the Forum’s Industry Partnershipprogrammes in automotive, aviation and logistics, and on interview series and survey involving someof the world’s leading academic, industry and government experts.

Encouragingly, more than 90% of almost 400 executives surveyed across 10 major industries haveindicated that supply chain and transport risk management has become a greater priority in theirorganisation over the last five years. More than 80% of those respondents said they have anenterprise risk management programme in place, or plan to implement one within the next twoyears.

However, the interconnected nature of global supply chain and transport networks means thatmodern businesses often depend on thousands of independent suppliers and partners located in manycountries, the survey explained. Therefore, they can be affected by risks at various stages fromthe sourcing of raw materials to the destinations of goods and services and these risks cannotalways be controlled by the companies.

The report named, as examples, some major disruptions occurred during the past five yearsincluding the global financial crisis, the Yemen parcel bomb, floods in Thailand and the Japaneseearthquake and tsunami highlighting how risks outside the control of individual organisations canhave unexpected consequences. These cannot be mitigated by one organisation alone, the surveystressed.

US Homeland Security Secretary Janet Napolitano reinforced the report’s warning. “We mustcontinue to strengthen global supply chains to ensure that they operate effectively in time ofcrisis; recover quickly from disruptions; and facilitate international trade and travel. As part ofthis effort, we look forward to working closely with our international partners in the public andprivate sector to build a more secure and resilient global supply chain.”

The report also highlighted some weaknesses in supply chains that undermine the stability ofnetworks such as the dependence on oil, availability of shared information, fragmentation of valuechains, extensive subcontracting and lack of supplier visibility.

To improve the current situation, the survey identified several risk management priorities forfurther development that should be integrated into the corporate strategy of organisations. Theoutlined priorities include collaborative and trusted networks, effective risk legislation andincentivisation, appropriate data and information sharing, improved quantification metrics andenhanced scenario planning.

At the Annual Meeting organised by the World Economic Forum in Davos, Switzerland, five keyrecommendations for business and governments were brought forward for discussion to enhance riskunderstanding and management and balance security and facilitation. Among those wererecommendations to improve international and inter-agency compatibility of resilience standards andprogrammes; explicitly assess supply chain and transport risks as part of procurement, managementand governance processes; develop trusted networks of suppliers, customers, competitors andgovernments focused on risk management; improve network risk visibility through two-way informationsharing and collaborative development of standardized risk assessment and quantification tools;improve pre- and post-event communication on systemic disruptions.

“General uncertainty in the global economy and the increasing sophistication of supply chainsnaturally breeds concern around network efficiency and vulnerability,” said Frank Appel, DeutschePost DHL CEO. “Our industries are working through the World Economic Forum’s Supply Chain &Transport Risk Initiative to understand and improve systemic resilience, for the benefit ofbusiness and society.”