Supply Chain Vulnerability

Modern supply chains are very complex, with many parallel physical and information flows occurring in order to ensure that products are delivered in the right quantities, to the right place in a cost effective manner. In fact, supply networks may be a more accurate term than supply chains. In this brochure the terms supply chains and supply networks are used with the same meaning.

The shift towards leaner supply networks during recent years has resulted in these networks becoming more vulnerable. In particular, there often tends to be very little inventory in the system to “buffer” any interruptions in supply and, therefore, any disruptions can have a rapid impact on the supply network.

These disruptions can arise from a number of sources, for example:

  • natural disasters (e.g. the Kobe earthquake, which affected supply networks across the globe, or, more recently, foot and mouth disease, which has affected the livestock haulage industry, the tourist industry, etc);
  • terrorist incidents (e.g. events in the USA on 11th September 2001)
  • industrial or direct action (e.g. the fuel price protest of September 2000, which very rapidly impacted on almost every supply network in the U.K.);
  • accidents (e.g. a fire in a component supplier can have such a serious impact on manufacture that they are forced to shut down operations, such as Toyota in 1997 – due to problems at its supplier of brake-pressure proportioning valves);
  • operational difficulties (e.g. production or supply problems at one supplier can impact every organisation in the supply network).

Owing to the close interrelationships between many supply networks, the impact of such disruptions can be far reaching.

Companies have been aware of the need for disaster recovery and emergency planning for some considerable time, particularly in areas such as information technology and production plants. Business risk is now receiving increasing attention by companies (and their insurers) particularly as regards the loss of market share and the time, and cost, of re-entering a market after a significant disruption to supply.

The robustness of supply networks is thus recognised as being critical both for individual organisations and for the economy as a whole.

Business Risk Treatments
Supply Chain Risk Factors

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