As a result of several natural disasters occurring in significant industrial areas, the crucial importance of supply chain risk management has been brought to the forefront over the past year. Ongoing floods in Thailand (the worst they have experienced in almost seven decades) have exacted a harsh economic toll on two of Japan’s largest auto companies, Toyota and Honda, causing production disruptions that could last for up to three months.
A November 9th article from Bloomberg Businessweek, highlighted Toyota and Honda’s inability to recover quickly from the floods and the subsequent forced discarding of their companies’ profit forecasts. Toyota’s profits decreased by nearly 20%, and its share in the U.S. dropped from 15.3% to 13.1% since last year. Surprisingly, companies that were thought to have the most knowledge and control over their complex supply chains have been exposed in the wake of natural catastrophes.
A November 11th article from Strategic Risk regarding the severe earthquake and tsunami in Japan earlier this year, discusses the importance of multiple suppliers and the overseeing/good management of each level of a supply chain to efficiently assess risk. Sometimes, the foresight to pay an inexpensive price early on to protect against potential risks can pay dividends in the future.
The importance of managing the risks from supply chain has become a critical part of a company’s overall risk management strategy. The Total Cost of Risk (TCoR) can be significantly affected by overlooking this area. For more information on supply chain risk management please see my June 2011 article on the subject matter. There are a couple of additional sources from FM Global that are posted below.