Supply Chain Disruptions: Balancing Risk and Resilience

Supply chain vulnerabilities can have long-term consequences, so a country’s resilience to disruptions is a major boon to companies seeking to locate operations.

The annual Resilience Index produced by commercial property insurer FM Global looks at economic strength, risk quality and supply chain factors to rank 130 countries and regions on how they stand up to supply chain disruption.

The 2015 FM Global Resilience Index Annual Report sees Norway retain the top spot, with strong results for economic productivity, control of corruption, political risk and resilience to an oil shock. Venezuela, with its economic, political and geological challenges, is ranked last.

FM Global executive vice president Chris Johnson, who joined the company in 1979 as a loss prevention engineer, says much has changed in the world of risk management since the days of merchant locations, when parts and goods were chiefly made on site or locally. Now supply chains are often attenuated.

“The 1980s were the advent of international conglomerates, so we started to see more interconnectedness and started to see investments move beyond safe havens of Western Europe,” he notes. Johnson headed up FM Global’s Latin American operations back then, and he recalls the early investments in Brazil, when the region was moving into periods of hyperinflation, shortages, supply chain interruptions and political unrest. The rise of the Asian Tigers followed in the 1990s, with China the dominant force, coinciding with globalization.

Today, Johnson says, increasing numbers of companies are moving away from the notion of doing it cheap and trying to find short cuts. “You can point to seminal moments when these things happen. There was a massive wakeup call in the US when hurricane Andrew hit. Angry people in Dade County started saying never again—somebody has to be culpable and how can we stop it. We very quickly shared in the public domain technology we have available to make buildings vastly more resistant to hurricanes than they’ve ever been before. Wind the clock forward and Puerto Rico, which handles much of the world’s pharmaceuticals, sits right in the path of Category 5 hurricanes, and the industry has hardened itself to hurricanes through engineering—it will just hunker down, and the hurricane will pass on by.

“If you look at, say, the flooding in Thailand,” continues Johnson. “Suddenly the effects are rippling through economies in an exceedingly short space of time. Risk management is of far more interest in the boardrooms of the finance community than it was 40 years ago.”

Taiwan rose the most in this year’s Resilience Index, jumping 52 places. Johnson praises the country’s business community for realizing there is an imperative to improving resilience. “This is their world-class businesses recognizing there is an economic advantage to being resilient.”