I n modern networked supply chains, the increasing number and frequency of severe supply chain disruptions means that “busi- ness as unusual” has become business as usual. According to
a survey conducted last year, more than eight out of 10 surveyed
companies have been hit by a supply or demand disruption during
the past two years, with almost half of those firms suffering a loss of
sales or revenue, and more than one-third having experienced lower
profits as a result of a disruption. 1 While the reporting of natural
disasters over ubiquitous social media channels tends to skew trends
toward modern times, occurrences of large-scale natural disasters,
such as the Thai floods, the Icelandic volcanic eruption, the Japanese
tsunami, and more have in fact increased over the last century, as is
evident in Figure 1. It is no secret that disasters are on the rise and
are a reality of a globalized world.
Although the exact consequences of disruptions are hard to measure, the financial impact of such disruptions—both natural and
man-made—can be indirectly estimated at both the macro and
the micro level. One way to assess the impact of large-scale disruptions is to follow the trends in the stock indices that are specific
to the country that has been most directly affected. For example,
the Japanese earthquake and tsunami resulted in the Nikkei Index
dropping by over 17 percent in the three days following the disaster;
Three techniques—
segmentation,
quantitative risk
assessment, and
scenario planning—
can help managers
identify, assess, and
mitigate supply
chain risk.
BY MUDASAR MOHAMED
How to recognize
and reduce risk
