One of the driving forces behind the expansion of business relationships has been an effort to reduce risk. That is particularly true in supply chains.

The pursuit for lower-cost materials and efficient logistics is important to industries of all kinds. But reliability of supply and precautionary redundancy have prompted firms to fling their supply networks across the globe.

It's likely that in going global, companies have actually increased their risk profiles. Broadening exposures can drive total risk higher, through actual exposure to new perils, or by making existing risks more difficult to manage.

That is especially true in the global supply chain where goods or services often come from countries with low per-capita income, weak regulatory control or where risk management practices and building codes are virtually nonexistent.

Yet even the industrialized world is not immune to global risks, as was proven by the earthquake and tsunami in Japan in 2011. Automobiles, car parts, electronics and many other sectors saw their supply chains disrupted, prompting them to diversify their sourcing, production and inventory to non-seismic areas.

Some firms respond to global supply chain losses by bringing operations and manufacturing back to the U.S., thinking that stateside risks are more controllable, or at least more knowable. What the on-shore trend implies is that security and control—or at least transparency—are worth some cost.

But for some organizations, such an option is not practical. Many companies increasingly want to know if they are making informed decisions that can make their organizations more resilient. They need quantitative frameworks to manage unknowns that may affect their supply chains on a broad level.

One way to assess a country's resilience to supply chain disruption is by examining it in three broad ways:

High-level economic risks specific to a country
Risk quality within a nation, which include property risk exposures and quality of risk management practices
Inherent supply-chain risks within that region, which are the tactical, logistical hazards of the specific modes and means of transportation, storage, and distribution of goods.

In a recent assessment of more than 100,000 commercial property locations across the globe that my company insures, we uncovered findings that may be considered counter intuitive to mainstream thinking. For example, the U.S. is often considered among one of the safest places for global business and trade. However, when looked at through the lens of supply chain resilience, the country doesn't come out at No. 1, due in part to political risk, corruption and local supplier quality.

In contrast, Norway, Switzerland and Canada rank as the top three most resilient countries in the world due to strong economies, high-quality infrastructure and a high level of risk quality. Of course, one also needs to consider some less desirable aspects of doing business in these countries, which include high wages and foreign exchange exposures.

Similarly, if a global supplier produces inexpensive goods but is located in a country with lower resilience, such as countries in Latin America and the Caribbean, there may be another low-cost supplier nearby in a nation with higher resilience.

Not every problem can be fixed, especially those on the other side of the world. Sometimes it may be wiser to consider accepting that risk and later mitigate its effects.

Special Reports /

Building Resiliency in Supply Chains

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