DAVOS, Switzerland — New supply chain risk management practices are needed in today’s world economy to safeguard manufacturers, retailers and consumers from events that can cause widespread disruptions and have devastating impacts on revenues and sales, top logistics executives and security officials said Thursday.
“The challenge is how to reduce risk and also increase business efficiency,” U.S. Homeland Security Secretary Janet Napolitano told a session on global supply risk at the annual Davos World Economic Forum.
Napolitano said global supply chains must continue to be strengthened “to ensure they can operate in times of crisis, recover quickly from disruptions and facilitate international trade and travel.”
Related Articles
A report compiled by the WEF on “New Models for Addressing Supply Chain and Transport Risk” highlights that globalization and the geographical concentration of production have made supply chains more efficient but have also changed their risk profile. Significant threats to supply chains include natural disasters, political upheaval, sudden demand shocks, export-import restrictions and acts of terrorism.
You May Also Like
An expert group identified considerable impact on revenues following a disruption, with 30 percent estimating losses of at least 5 percent of annual revenues as a result of supply chain disruptions. However, the WEF report notes it can also have longer-lasting effects such as damage to reputation due to delays and failures in deliveries of products.
Supply networks are also vulnerable, it notes, from the availability of shared information, fragmentation of value chains, and extensive subcontracting and lack of supplier visibility.
Daniel Brutto, president of UPS International, told delegates, “Concentration of location is one of the biggest supply chain issues” and stressed this was acute when manufacturing in one part of the world is a component critical to the whole global supply chain for production taking place in multiple countries.”
Brutto said a possible cyber-attack also poses “a great risk for supply chain security.” He said all companies “need to have backup systems” for trade facilitation to recover rapidly after any attack.
With increasing reliance on online systems coupled with the growing sophistication of cyber attacks, “information-communication disruptions could have a high global impact across supply chain and transport networks,” the report said.
Dan Olsson, chief executive officer of Stena, a Swedish international shipping group, said piracy is costing the global shipping industry an extra $12 billion to $15 billion a year through increased costs to employ maritime guards, increased insurance costs and forced rerouting.
Piracy “is a growing problem,” admitted Napolitano.
The WEF report recommends that companies develop trusted networks of suppliers, improve network risk visibility and assess supply chain and transport risks as part of management and governance processes.