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Global Logistics: New perspectives on global transportation risk

Most enterprises have logistics and transportation risk management protocols that can address localized disruptions. Global supply chain risks, however, can have cascading and unintended consequences that no one organization can mitigate. Here are recommendations for managing the vulnerabilities.

More than 90 percent of those surveyed by the World Economic Forum indicate that supply chain and transport risk management has become a greater priority in their organization over the last five years.

May 01, 2012

Thanks to globalization, lean processes, and the geographical concentration of production, among other factors, supply chain and transport networks are more efficient than ever before. This increasing sophistication and complexity, however, is accompanied by increasing risk.

Major disruptions in the past five years—including the global financial crisis, the Yemen parcel bomb scare, flooding in Thailand, and the Japanese earthquake and tsunami—have illustrated the vulnerabilities of finely tuned, closely interconnected supply chain and transport networks.

Although risks have increased, there are concerns about the ability of organizations to address this new risk profile. As the recent World Economic Forum (WEF)/Accenture report, New Models for Addressing Supply Chain and Transport Risk, points out, most enterprises have logistics and transportation risk management protocols that can address localized disruptions. Greater supply chain risks outside the control of individual organizations, however, can have cascading and unintended consequences that no one organization can mitigate.

While it’s important to be able to anticipate specific disruptions, it’s even more important to build in dynamic systems and processes that can quickly and effectively respond to changing logistics and transportation circumstances. The goal is not to predict what will happen, or when, but to be prepared and able to respond in an informed, planned manner.

The report identified a number of recent supply chain and transport concerns that have increased organizations’ risk profile, creating the need for more dynamic supply chains.

  • Information/communication disruptions: Growing reliance on online systems and the sophistication of cyber attacks place ever-greater stress on supply chain and transportation networks. In transport, for example, the increased reliance upon, and use of, electronic data for real-time risk assessment—including electronic manifests for cargo—have proven effective in facilitating the movement of freight. At the same time, however, they have put more pressure on governments and businesses to maintain robust and secure information and communications networks.

  • Infrastructure failure: Critical infrastructure, from roads to power stations, is under pressure due to lack of investment and planning for future resiliency. In the U.S. alone, the American Society of Civil Engineers estimated that the cost of repairing national infrastructure at $2.2 trillion over the next five years. The disruption or failure of critical infrastructure nodes could have a severe impact on global transportation networks, and needs attention and investment.
  • Reliance on oil: The WEF expert group identified reliance on oil as the single greatest vulnerability to supply chain and transportation networks. An immediate change in oil availability as the result of external disruptions such as civil unrest or terrorist attacks (or closure of the Straits of Hormuz) could have an extensive global impact on transport networks in particular.

    This vulnerability is itself a subset of a broader, long-term challenge of addressing oil reliance. A more dynamic supply chain might respond by varying sourcing options based on a reassessment of a company’s global manufacturing footprint that moves production closer to target markets and reduces shipping costs.

  • Legislation and regulation: When the Icelandic volcano erupted in 2010, the reactive response of European transport ministries and civil aviation authorities resulted in uncertainty and delays in restarting air traffic. There was a failure to recognize in advance the potential threat presented by such ash clouds, along with inflexible aviation protocols and the absence of any pre-existing agreement on safe ash levels. Similarly, well-intentioned government initiatives such as air cargo screening can impede the efficient flow of transport networks.

While there are significant new risks arising on these and other fronts, organizations also have new opportunities to improve their supply chain and transportation risk management. The first step identified in the report was the development of the trusted networks for effective collaboration.

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