Executive Briefings

Supply Chain Disruptions Major Threat to Share Prices of Businesses

In recent years, supply chains have become longer and more complex, while the severity and frequency of supply chain disruptions seems to be increasing. In close cooperation with Accenture, the World Economic Forum recently presented a report, "Building Resilience in Supply Chains," at the WEF Annual Meeting in Davos, Switzerland. It indicates that significant supply chain disruptions reduce the share price of affected companies by as much as seven percent on average.

Natural disasters and extreme weather conditions are not the only threats to supply chains.  Systemic vulnerabilities, such as oil dependence and information fragmentation, also pose serious risks, as do political unrest, cyber-crime and the rising cost of insurance and trade finance.  Research shows that 80 percent of companies worldwide see better protection of supply chains as a priority.

There are worldwide steps that industry groups and government can take together to make supply chains more resilient, such as institutionalizing a risk assessment process within a broad-based, neutral international body, or expanding the use of data-sharing platforms for risk identification and response.  To help government, industries and consumers cooperate, the report calls for a common risk vocabulary, improved data sharing along and between supply chains, and more flexible response strategies.

Private sector companies can support broad measures such as those discussed at Davos, but they should also take steps to make their own supply chains more resilient and risk-resistant.  Two important private sector priorities are the use of exercises to stress-test assumptions and plans, and the development of business continuity or trade resumption plans, protocols and lines of authority to address major concerns.   When a disruption occurs, businesses need to have mitigation plans in place to prevent loss of market share to better prepared or less affected competitors.

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Natural disasters and extreme weather conditions are not the only threats to supply chains.  Systemic vulnerabilities, such as oil dependence and information fragmentation, also pose serious risks, as do political unrest, cyber-crime and the rising cost of insurance and trade finance.  Research shows that 80 percent of companies worldwide see better protection of supply chains as a priority.

There are worldwide steps that industry groups and government can take together to make supply chains more resilient, such as institutionalizing a risk assessment process within a broad-based, neutral international body, or expanding the use of data-sharing platforms for risk identification and response.  To help government, industries and consumers cooperate, the report calls for a common risk vocabulary, improved data sharing along and between supply chains, and more flexible response strategies.

Private sector companies can support broad measures such as those discussed at Davos, but they should also take steps to make their own supply chains more resilient and risk-resistant.  Two important private sector priorities are the use of exercises to stress-test assumptions and plans, and the development of business continuity or trade resumption plans, protocols and lines of authority to address major concerns.   When a disruption occurs, businesses need to have mitigation plans in place to prevent loss of market share to better prepared or less affected competitors.

Read Full Article