Supply chain risk

A higher volume of enquiries from both CFOs and CEOs, asking how to manage the threats posed to their businesses from issues like terrorism and political unrest, landed on Aon’s desks last year, the firm says. Miles Johnstone, Aon’s director of political risk, believes that as both those pressures worsen in most markets, compounded by the fallout of the credit crunch, supply chain risk will grow to become a serious problem this year. That means more work for FDs ­ but, according to the study, 37% of businesses surveyed were not prepared for distribution or supply chain failure.

The study found supply chain risk heightened across the EU, led by restrictions on China’s permission to export textile products to Europe, while China faced increased risk from internal political risk affecting back-office operations and continued fallout from 2007’s spate of damaging product recalls. In fact, all of the BRIC economies, Brazil, Russia, India and China ­ key for many UK companies outsourcing manufacturing and services ­ have faced and will continue to wrestle with myriad issues typical of emerging markets that will hit supply chains for UK companies.

But emerging economies aren’t the only problem ­ UK FDs must bear the brunt of political deals done by their own government including trade embargoes on Chinese imports, and clamp-downs on outsourcing. Some companies have already planned for this by directing their outsourcing to newer, even cheaper markets such as Vietnam, Thailand and Indonesia, though Aon found that these markets faced supply chain risks of their own ­ first due to fears of future Avian Flu outbreaks and second to infrastructure deterioration.

Shipping lanes in the Persian Gulf, Turkey, and the Panama and Suez canals face being closed down by terrorism strikes this year, pointing to crippled supply chains, effectively shutting down just-in-time operations and throwing potential for costly liability suits. That’s not to mention highly damaging re putational and client relationship issues that, as our cover story illustrates, CEOs are starting to recognise as a crucial part of the FD’s remit.
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