Considering Natural vs. Man-made Supply Chain Risks: A Case for an Enterprise Supply Chain Risk Management Approach

In today’s environment, natural and man-made supply chain risks create numerous and unpredictable cyber security challenges across both government and corporate organizations. To prevent these types of disruptions, companies can adopt certain strategies, such as enterprise risk management, that will bolster risk-management measures.

Natural supply chain risks include extreme weather and unplanned disasters such as floods, earthquakes, and tsunamis.  These events impact manufacturing, distribution, inventory, and product quality.  Man-made supply chain risks are equally important and present security, resiliency, or quality challenges. These risks include cyber security vulnerabilities, counterfeit or gray market parts, political instability, and labor relations strikes.

Natural Supply Chain Risks

Natural supply chain risks can slow the rate of logistics deliveries through routine distribution channels, create large gaps in manufacturing processes, and degrade product quality.  According to the 2014 BDO Manufacturing Risk Factor Report, 88% of the top 100 U.S. manufacturers noted natural disasters as a critical corporate risk.[1]  Recent examples of how natural disasters, including extreme weather, affect supply chains are:

  • 2013-2014 U.S. Winter Season: The Journal of Commerce reported, “Ten industries reported slower supplier deliveries in January (2014), from the makers of plastics, rubber and paper products, to appliance and electronics manufacturers creating gaps in the manufacturing process and reducing the availability of finished goods and services.”
  • The 2011 Great Tohuko Earthquake and Tsunami: According to Automotive News, “The March 11 disasters temporarily closed the plants that make 17 of the top 20 models of Japanese vehicles sold in the United States and prompted General Motors to close a plant in Louisiana and Peugeot a plant in Europe.”
  • 2010 Thailand Flooding: Some of the world’s largest computer makers were without a reliable forecast about when crucial parts would again be available according to The New York Times. The Business Forward Foundation noted that as a result, “Production by consumer electronics manufacturers in the U.S. dropped by one-third.”[2]

Man-made Supply Chain Risks

Man-made supply chain risks are intentional or unintentional acts that cause products or supply chains to react differently than originally intended.  These man-made vulnerabilities can be a direct result of a cyber-attack, manifested by inserting malware into a product somewhere between manufacturing and deployment.  Other man-made vulnerabilities can include counterfeit parts and gray market incidents, political instability affecting distribution routes, or labor instability.  All of these events were of major concern for U.S. manufacturers in 2014.[3]  Recent examples of man-made supply chain risks are:

  • The 2013 Target Breach: The breach occurred as a result of a third party supplier of Target being hacked through phishing emails. From there, the hackers penetrated Target’s network.[4]
  • Aston Martin Recall: In 2014, Aston Martin recalled approximately 17,590 cars as plastics procured by a Chinese sub-tier supplier were identified to be counterfeit. These plastics were used in the accelerator foot pedal and resulted in a higher likelihood of a crash.[5]
  • Union Worker Strikes: Recently, the International Longshore and Warehouse Union workers on the U.S. West Coast were striking due to pending contract negotiations. This drastically affected shipping container movement into and out of West Coast ports. Specifically, container traffic in Oakland, CA plunged 32%, leading to increased delays in shipping.[6] This labor instability created both import and export supply chain challenges.  Exports within the Food and Agriculture sector were most affected, while imports for automobile parts shut down manufacturing operations throughout the central United States.

How to Mitigate Natural and Man-made Risks

Since it is nearly impossible to completely eliminate these types of risks, organizations should adopt an overarching enterprise supply chain risk management strategy. The crucial step in developing this strategy is understanding the level of risk an organization is willing to accept.  In order to facilitate this approach, corporate leaders must identify specific risk thresholds that can be tracked and measured.   Corporations can then establish mitigations that will alleviate or reduce the impact of both natural and man-made supply chain risks.

For example, corporate leaders should encourage the development of diverse supplier and sourcing strategies to avoid the residual effects of natural and man-made risks.  Education and the presentation of successful metrics throughout each tier of the organization is also critical to demonstrating success or providing a mechanism for improvement.  As part of this approach, organizations must also require their sub-tier suppliers to develop and sustain similar enterprise strategies.  These measures will ultimately help organizations begin to alleviate disparate supply chain risks.

For more information on how Interos Solutions, Inc. can help your organization develop an enterprise risk management strategy, please contact our team at info@interos.net.

Sources: 

[1] https://www.bdo.com/insights/industries/manufacturing-distribution/2014-bdo-manufacturing-riskfactor-report

[2] http://www.manufacturing.net/articles/2015/02/how-to-minimize-your-supply-chains-exposure-to-extreme-weather-natural-disasters

[3] https://www.bdo.com/insights/industries/manufacturing-distribution/2014-bdo-manufacturing-riskfactor-report

[4] http://www.businessinsider.com/heres-what-happened-to-your-target-data-that-was-hacked-2014-10

[5] http://www.reuters.com/article/2014/02/05/autos-astonmartin-recall-idUSL2N0LA0O920140205

[6] http://www.joc.com/node/3087041

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