Does your risk management strategy take into account the political stability and oil-shock resistance of the countries from which you receive supplies?
A recent report from insurance company FM Global identifies the greatest risk to a company's supply chain, whether the risk comes from the location of the project or the location of the supplier.
In FM Global's 2015 Resilience Index, Norway achieved the top spot with high scores for gross domestic product per capita, low historical exposure to natural hazards and perceptions of good corruption controls. Taiwan rose 52 places from 89th last year to 37th this year, due to significant improvements in natural hazard risk management and fire risk management.
Venezuela held the lowest ranking for supply-chain resilience.
“Any company that has supply chain dependencies within countries that are listed in the Resilience Index may discover that they have some potential vulnerabilities in their supply chain that they were not aware of,” says Steven Zenofsky, a spokesman for FM Global.
“Whether you're a manufacturer or whether you rely on supplies coming from these countries, or you're supplying to these countries, it's all applicable.”
The FM Global index combines data on each included country's GDP per capita, oil consumption, World Bank World Governance Indicators and the World Economic Forum's Global Competitiveness Report. It also includes data about risk-quality drivers collected by FM Global's property risk engineers.
Norway has a considerable petroleum and petroleum products trade, which supports a strong economy and the world's largest sovereign wealth fund, specifically designed to protect the country from instability in the international petroleum economy.
Taiwan is well-known for its susceptibility to natural disasters, experiencing three typhoons and two earthquakes in 2013 alone. FM Global researchers found that its ranking for commitment to natural-hazard risk improvement rose from last place in 2014 to 109th this year, jumping 21 places.
The data does not incorporate all potential risks, says Zenofsky.
Norway, with its long natural coastline, and Taiwan, an island, would both face risks from projected sea level rises possibly resulting from global climate change. The possibility of sea level rise does not factor into FM Global's index.
Results for the countries that supply significant construction materials are particularly revealing. For example, steel products represent different supply chain risks if they come from Canada, ranked 8th in the FM Global report, or from South Korea, which ranked 70th.
Similarly, cement imports from China, the three regions of which rank 63, 64, and 69, appear favorably compared to imports from India, in 119th place, and Indonesia, ranked 106.
Zenofsky adds that there is room for improvement in Norway's score, particularly in fire-risk improvement commitment.
Anyone seeking lower fire risk for suppliers or projects, he says, should ask themselves, “How well protected is that business against fire? Does it have automatic fire sprinklers? What type of property protection practices does it have in place? How was the building constructed? I would suggest that, when you're evaluating your suppliers, that would be a core element of evaluating supply-chain resilience.”
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