Executive Briefings

Despite Tsunami's Effects on Supply Chains, Preparing for Such Disruptions Still Not a Priority for Many Execs

The devastating 2011 Japanese tsunami was a wake-up call for many companies. Senior executives around the world are asking what changes should be made to better prepare for future incidents? Unfortunately, we have seen over and over that for most companies the memory of such events will fade, and the executive team's attention will be consumed by other matters deemed higher priority. This is understandable, because top executives' metrics, compensation and the firm's stock price are usually not impacted much (or at all) by the company's level of supply chain resilience . . . until after a disruption occurs. Our past research has shown that executives' tolerance for risks tends to be quite a bit higher than many of us would consider reasonable.

In late March and early April 2011, in the wake of the Japanese tsunami, we conducted a survey about supply chain risk. Our survey found that supply chain resilience tended to be reviewed and managed "down in the trenches" by the people with immediate responsibility for operational functions, as well as by the head of those functional units, such as the vice president of supply chain. Review by executives in charge of the business unit or by corporate executives is considerably less common. (You can be sure that those same executives are reviewing sales numbers daily or weekly.) This shows that for about 80 percent of companies, supply chain resilience is not yet a priority at the executive level, except for those executives directly responsible for supply chain functions.

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The devastating 2011 Japanese tsunami was a wake-up call for many companies. Senior executives around the world are asking what changes should be made to better prepare for future incidents? Unfortunately, we have seen over and over that for most companies the memory of such events will fade, and the executive team's attention will be consumed by other matters deemed higher priority. This is understandable, because top executives' metrics, compensation and the firm's stock price are usually not impacted much (or at all) by the company's level of supply chain resilience . . . until after a disruption occurs. Our past research has shown that executives' tolerance for risks tends to be quite a bit higher than many of us would consider reasonable.

In late March and early April 2011, in the wake of the Japanese tsunami, we conducted a survey about supply chain risk. Our survey found that supply chain resilience tended to be reviewed and managed "down in the trenches" by the people with immediate responsibility for operational functions, as well as by the head of those functional units, such as the vice president of supply chain. Review by executives in charge of the business unit or by corporate executives is considerably less common. (You can be sure that those same executives are reviewing sales numbers daily or weekly.) This shows that for about 80 percent of companies, supply chain resilience is not yet a priority at the executive level, except for those executives directly responsible for supply chain functions.

Read Full Article