Allied with this, the evolving supply chain and production strategies of the major global manufacturers will heighten the level of risks inherent within various parts of the supply chain “Best practice” which creates lean supply chains – such as Just-in-Time logistics – also makes them more vulnerable to disruption Supply Chain Risk assesses the various sources of external threat to the supply chain, including environmental, geopolitical, economic and technological John Manners-Bell clearly describes the evolving risks to supply chains and how multinational corporations should be dealing with them at a strategic level He examines the lack of supply visibility that puts businesses at risk and includes case studies of best practice, as well as citing examples of when and how things go wrong Each case study describes: a company’s supply chain and production/ sourcing strategy; the catastrophic event that occurred; consequences to supply chain and management response; material losses incurred and resultant changes to company supply chain strategy There are also invaluable downloadable online resources including a survey on companies’ attitudes to supply chain risk This is an essential text for risk managers, supply chain managers, supply chain operators and anyone interested in risk management and its growing impact on the supply chain Kogan Page London Philadelphia New Delhi www.koganpage.com £44.99 US $65.00 JOHN MANNERS-BELL John Manners-Bell is the founder and CEO of Transport Intelligence, a leading supplier of market solutions to the global logistics industry He is Chairman of the Supply Chain Council of the World Economic Forum and an adviser to the UN and the European Commission Prior to establishing Transport Intelligence, he worked as an analyst in consultancies specializing in international trade, transport and logistics SUPPLY CHAIN RISK Threats to supply chains have received considerable attention in recent years following the tsunami in Japan, floods in Thailand, bombs found on cargo planes and even volcanic ash clouds over Europe The risks themselves could well become more acute over the next few years, due to the increasing prevalence of natural disasters and the continued threat of terrorism ISBN: 978-0-7494-7110-1 Logistics Kogan Page JOHN MANNERS-BELL SUPPLY CHAIN RISK UNDERSTANDING EMERGING THREATS TO GLOBAL SUPPLY CHAINS Supply Chain Risk Supply Chain Risk Understanding emerging threats to global supply chains John Manners-Bell KoganPage Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however caused No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors First published in Great Britain and the United States in 2014 by Kogan Page Limited Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 2nd Floor, 45 Gee Street London EC1V 3RS United Kingdom 1518 Walnut Street, Suite 1100 Philadelphia PA 19102 USA 4737/23 Ansari Road Daryaganj New Delhi 110002 India www.koganpage.com © John Manners-Bell, 2014 The right of John Manners-Bell to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988 ISBN 978 7494 7110 E-ISBN 978 7494 7111 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Manners-Bell, John Supply chain risk : understanding emerging threats to global supply chains/John Manners-Bell pages cm ISBN 978-0-7494-7110-1 (paperback) – ISBN 978-0-7494-7111-8 (ebk) Business logistics Materials management Risk management I Title HD38.5.M364 2014 658.7–dc23 2014003263 Typeset by Amnet Print production managed by Jellyfish Printed and bound by CPI Group (UK) Ltd, Croydon CR0 4YY CO N T E N T S List of figures  viii List of tables  ix About this book  x Acknowledgements  xi Introduction  1 01 A framework for understanding risk  5 An analysis of supply chain threats  5 The severity of threat  7 Understanding the causes of supply chain disruption  14 External risk categories  22 02 Engineering supply chain resilience  31 Preparedness and strategies for response  33 Business Continuity Management (BCM)  35 Offsetting the risk of business interruption  36 Case study of resilience: how does Cisco manage risk?  38 The role of flexible technology in supply chain resilience  42 The role of government and commercial companies  44 03 Industry sector resilience to supply chain threats  47 Automotive  47 High tech  56 Consumer goods/retail  62 Food  64 Fashion  69 Pharma/healthcare  72 vi Contents 04 Natural disasters, climate change and pandemics  79 The impact of natural disasters on supply chains  79 Climate change  92 Pandemics  104 05 Economic risks to the supply chain  109 Demand shocks  109 Currency fluctuations  112 Supply shocks  113 Industrial unrest  119 06 Societal risks to supply chains  123 Fair labour  123 ‘Conflict-free’ minerals  132 Environmental practices of supply chain partners  138 Food shortages in developing countries  150 07 Terrorism and security  157 Risk and security in air cargo supply chains  157 Sea freight security  164 Conclusion  174 08 Corruption in the logistics industry  177 Why is the logistics industry so prone to corruption?  177 ‘Anti-bribery, anti-corruption’ legislation  178 Most corrupt markets  179 Freight forwarding and Customs corruption  180 Customs corruption in the EU  183 Dealing with corrupt Customs officials: WEF best practice  184 Smuggling and Customs corruption  187 VAT fraud schemes  189 Cracking down on customs corruption  190 Freight forwarding, airlines and cartels  191 Unofficial tolls and crossing controls  193 Allegations of corruption in government contract negotiations  196 Contents Major defence logistics corruption in Afghanistan 198 Humanitarian aid logistics corruption  200 Organized crime in transport operations  205 09 Cargo crime and piracy  209 What is cargo crime?  209 Theft from trucks and warehouses  211 Combating vehicle-based cargo crime  214 Cargo crime in North America  216 Cargo crime in emerging markets  218 Theft from airports  219 Conclusion  221 Cyber threats to supply chains  222 Piracy  224 Conclusion  235 10 Conclusion  237 References  239 Further reading  241 Index  243 vii LIST OF FIGURES FIGURE 1.1 FIGURE 1.2 FIGURE 1.3 FIGURE 1.4 FIGURE 2.1 FIGURE 3.1 FIGURE 3.2 FIGURE 4.1 FIGURE 5.1 FIGURE 5.2 FIGURE 6.1 FIGURE 6.2 FIGURE 7.1 FIGURE 7.2 FIGURE 7.3 FIGURE 9.1 FIGURE 9.2 FIGURE 9.3 Internal and external corporate risks  6 Global supply chain risk – supply chain internal and external characteristics  7 Rebalancing of internal and external risk  9 Global supply chain risk – probability of disruption  10 Supply chain disruption contingency  33 Global supply chain risk – sector threat resilience  48 The horsemeat scandal supply chain  66 Map of air space affected by ash clouds from EyjafjallajÖkull  90 Shipping rate fluctuations  114 Oil prices volatility  115 Ford programme – covered countries for Conflict Minerals  137 To what extent you think the following processrelated factors influence the level of food losses of your products?  150 Map of the Suez Canal  170 Map of the Straits of Hormuz  172 Map of the Panama Canal  173 Map of cargo crime ‘hot spots’ in the United States  217 Map of trade lanes passing Somalia and High Risk Areas  227 Area of operation of ‘Ocean Shield’  231 L I S T O F TA B L E S TABLE 4.1 TABLE 6.1 TABLE 8.1 TABLE 9.1 TABLE 9.2 TABLE 9.3 Most major recent natural disasters  80 OECD Five Step Process  136 Corruption risk examples in humanitarian logistics  202 Incidences of actual and attempted piracy attacks  226 Breakdown of the costs of piracy  229 Incidences of pirate activity 2008–2012  232 Cargo Crime and Piracy HRAs, a shipping line may decide to sail around the Cape of Good Hope instead of using the Suez Canal This will obviously increase the consumption of fuel and add to chartering costs/labour costs and so on However, it will also mean that the shipper will absorb additional inventory holding costs, due to the delay in the delivery to the customer There is also the issue of modal shift In some cases shippers will decide that it would be prudent to send goods by air rather than by sea, if the consignment was transiting an HRA Conclusion What is clear is that although the recent efforts by the international community to reduce piracy in Somalia have been very successful, the underlying cause of the problem has not gone away If anti-piracy initiatives such as on-board security personnel were ended, the number of attacks would again increase Consequently rebuilding of the Somali state must be at the forefront of policy makers’ efforts According to the One Earth Future Foundation, the only long-term solution for the problem of piracy is investment on land rather than in shortterm mitigation initiatives at sea, such as Typhon In 2013, five shipping lines, ‘K’ Line, Maersk Line, Stena, NYK Line, Mitsui OSK Line, teamed up with Shell and BP to donate $1 million in support of job creation and capacity building projects in Somalia The group has pledged a further $1.5 million This is a fact recognized by the shipping lines, maritime organizations and shippers A joint statement issued by the International Chamber of Shipping, BIMCO, the Oil Companies International Marine Forum, the International Association of Independent Tanker Owners, the International Association of Dry Cargo Shipowners, the International Parcel Tankers Association and the International Shipping Federation warned that increased anti-piracy measures were required to fight the long-term threat of piracy: [We] remain convinced that the only long-term solution to piracy is to establish effective government and implement the rule of law ashore in Somalia However, until that is achieved, there can be no room for complacency Any reduction in the level of protection of merchant ships could lead to a resurgence of pirate activities Piracy must continue to be suppressed through the visible presence of, and robust action by, the world’s navies, consistent with international law 235 Conclusion 10 A s this book has demonstrated, risk comes in many forms It can have a direct impact in terms of financial loss, or can be more indirect in its consequences through a detrimental effect on reputation Its impact can range from operational and containable to systemic and catastrophic It is impossible for supply chain managers to predict low probability, high impact events such as natural disasters However, it is possible for supply chains to be made more resilient – ‘risk agnostic’ – by adopting a series of measures: ● Implement international standards of risk awareness and response ● Ensure that there is clear responsibility for managing risk ● Start measuring risk so that decisions on appropriate levels of inventory can be made more accurately ● Improve visibility to Tier suppliers and beyond ● Improve inventory visibility and increase levels of agility and velocity Risk is not just about the catastrophic and business critical ‘black swan’ event Criminality, for example, tends to be regarded by many companies outside of the high-tech and pharmaceutical sectors, as a low level threat and seen by many as almost another operational cost In fact, as has been described, cargo crime and corruption costs industry and governments billions a year, and much more attention should be focused on the issue Companies can play a role in this through implementing a range of sensible and basic checks on their logistics providers’ operational and security procedures Governments need to prioritize the crime and stop treating it as ‘victimless’ Terrorism (or more accurately, government’s fear of terrorism) is another pressing issue facing the logistics industry Undoubtedly air and sea freight supply chains are highly vulnerable, demonstrated by the ease with which criminals seem able to breach security Therefore it is perhaps surprising that incidence of terrorist activity is very low The introduction of comprehensive x-ray screening would seem to present a greater threat in terms of costs 238 Supply Chain Risk to the efficiency of supply chains (and the wider economy) than terrorist activity itself Corruption is another risk which is either ignored by many shippers and logistics companies, or swept under the carpet Yet, it is an issue which will only increase in importance as supply chains move into second and third tier emerging markets As UK and US legislation makes it more difficult for companies to turn a blind eye to bribery, governments and private sector must work together to ensure that economic growth is not held back Physical disruption to supply chains is only part of the problem The very nature of modern ‘virtual manufacturing networks’ means that production often takes place in remote and emerging markets where labour is cheap and environmental standards are low Manufacturers and retailers have a responsibility to ensure that they balance the commercial benefits of such a strategy with their own social and corporate responsibilities As companies such as Hewlett Packard have shown in the way they have approached sourcing conflict-free minerals in the Democratic Republic of Congo, this is perfectly possible REFERENCES Ben Barka, H (2012) Border Posts, Checkpoints, and Intra-African Trade: Challenges and solutions, African Development Bank, Tunis Christopher, M and Peck, H (2004) Building the Resilient Supply Chain, International Journal of Logistics Management, 15 (2), pp 1–13 Committee on Climate Change and U.S Transportation (2008) Potential Impacts of climate change on U.S Transportation, Transportation Research Board, Washington DC CSD (2010) Examining the Links Between Organised Crime and Corruption, CSD, Sofia Department of Commerce Bureau of Industry and Security (BIS) Office of Technology Evaluation (2010), Defense Industrial Base Assessment: Counterfeit Electronics, BIS, Washington Despoudi, S, Papaioannou, G and Dani, S (2012) Supply chain collaboration (SCC) to reduce postharvest food losses (PHFL) In 17th Logistics Research Network Annual Conference, Cranfield University, UK, pp 1–8 Environment, Food and Rural Affairs Committee (2013), Food Contamination Fifth Report of Session 2013–14, House of Commons, London Europol (2009) Cargo Theft Report: Applying the brakes to road cargo crime in Europe, Europol, The Hague FreightWatch International (FW) Supply Chain Intelligence Center (2013) Global Cargo Theft Threat Assessment, FW, USA Good Corporation (2012) Anti-Corruption Procedures in Freight Forwarding, Good Corporation, London Heyndrickx, C and Breemersch, T (2012) ECCONET: Climate change and adaptation to inland waterways, Transport & Mobility Leuven IBM (2009) The Smarter Supply Chain of the Future, IBM, New York Improved Road Transport Governance Initiative (IRTG) (2011) Fourteenth Improved Road Transport Governance Report, UEMOA International Chamber of Commerce (ICC), Transparency International, United Nations Global Compact, World Economic Forum (2011) RESIST: Resisting extortion and solicitation in international transactions, UN Global Compact Office, New York ICC International Maritime Bureau (IMB) (2012) Piracy and Armed Robbery Against Ships, ICC IMB, London International Road Transport Union (IRU) (2008) Attacks on Driver of International Heavy Goods Vehicles, IRU, Geneva 240 References Lee, B, Preston, F, with Green, G (2012) Preparing for High-impact, Lowprobability Events: Lessons from Eyjafjallajökull, Chatham House, London Leviäkangas, P and Saarikivi, P (2012) European Extreme Weather Risk Management – Needs, Opportunities, Costs and Recommendations, EWENT, Brussels McKinnon, A (2006) Life without Trucks: The effects of the disruption of road freight transport on a national economy, Journal of Business Logistics, 27 (2) Mason-Jones, R and Towill, D (1998) Shrinking the Supply Chain Uncertainty Cycle, Control, September, pp 17–22 MIT (2011) Global Risk Survey, Phase II, MIT, USA One Earth Future (OEF) Foundation (2010) The Economic Cost of Maritime Piracy, OEF, Broomfield, Co Reason, J, Hollnagel, E and Paries, J (2006), Revisiting the Swiss Cheese Model of Accidents, EUROCONTROL Experimental Centre, Brussels Regmi, M and Hanaoka, S (2009) Impacts of Climate Change on Transport and Adaptation in Asia, Proceedings of the Eastern Asia Society for Transportation Studies, Savage, K with Jackollie, M S, Kumeh, D M and Dorbor, E (2007) Corruption Perceptions and Risks in Humanitarian Assistance: a Liberia case study, Humanitarian Policy Group (HPG), ODI, London Shang-Jin Wei and Smarzynska, B (1999) Pollution Havens and Foreign Direct Investment: Dirty secret or popular myth? The World Bank, New York Taleb, N (2007) The Black Swan: The impact of the highly improbable, Random House, US Transparency International (2012) Corruption Perceptions Index 2012, Transparency International, Berlin Transparency International India (TII) (2007) Corruption in Trucking Operations in India, TII, 2007 U.S House of Representatives Subcommittee on National Security and Foreign Affairs Committee on Oversight and Government Reform (2010) Warlord, Inc: Extortion and Corruption Along the U.S Supply Chain in Afghanistan, Congressional Research Service, Washington Vander Stichele, M et al (2011) Bitter Fruit, Centre for Research on Multinational Corporations/SOMO, Netherlands World Bank, The (2013) The Pirates of Somalia: Ending the threat, rebuilding a nation, The World Bank, Washington World Economic Forum (WEF) (2012) New Models for Addressing Supply Chain and Transport Risk, WEF, Geneva WEF (2013a) Building Resilience in Supply Chains, WEF/Accenture, Geneva WEF (2013b) The Global Competitiveness Report 2012–2013, WEF, Geneva FURTHER READING ALPA (2013) Cyber Threats: Who controls your aircraft? The International Federation of Air Line Pilots’ Associations, Montreal Bailey, S (2008) Need and Greed: Corruption risks, perceptions and prevention in humanitarian assistance, Humanitarian Policy Group (HPG), ODI, London Brenton, P and Isik, G (2012) De-Fragmenting Africa, The World Bank, Washington Brown, J (2012) Risk Management Defined, CSCMP, Illinois Canis, B (2011) The Motor Vehicle Supply Chain: Effects of the Japanese earthquake and tsunami, Congressional Research Service, Washington Carbon Disclosure Project (2013) [online] www.cdp.net CargoNet (2012) 2011 United States Cargo Theft Report, CargoNet, USA Center for the Study of Democracy (CSD) (2004) Transportation, Smuggling and Organized Crime, CSD, Sofia Chang-Gui Gu, Sheng-Rong Zou, Xiu-Lian Xu, Yan-Qing Qu, Yu-Mei Jiang, and Da Ren He (2011) Onset of cooperation between layered networks, Physical Review E-Statistical, Non-linear and Soft Matter Physics, 84 (2) Cozzolino, A (2012) Chapter 2, Humanitarian Logistics and Supply Chain Management, in Cross-Sector Cooperation in Disaster Relief Management, Springer Criminal Justice Information Services (CJIS) Division Uniform Crime Reporting (UCR) Program (2013) Cargo Theft User Manual, Law Enforcement Support Section (LESS) Crime Statistics Management Unit (CSMU), USA Dean, J, Lovely, M and Wang, H (2009), Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China, Journal of Development Economics, 90, pp 1–13 Department of Homeland Security (DHS) (2006) A Performance Review of FEMA’s Disaster Management Activities in Response to Hurricane Katrina, DHS, Washington Dolfman M, Wasser S F and Bergman, B (June 2007) The effects of Hurricane Katrina on the New Orleans economy, Monthly Labor Review pp 3–18 DOT Center for Climate Change and Environmental Forecasting (2002) The Potential Impacts of Climate Change on Transportation, DOT, Washington Federal Financial Institutions Examination Council (FFIEC) (2006) Lessons Learned from Hurricane Katrina, FFIEC, USA FW APAC, (2013) Global Cargo Theft Threat Assessment, FW, Malaysia Global Risk Miyamoto (2007) Niigata Chuetsu-Oki Japan Earthquake Reconnaissance Report, Global Risk Miyamoto, Sacramento 242 Further Reading Hearson, M ( 2006) Who pays for cheap clothes?, Labour behind the label, Norwich Helferich, O (2012) Catastrophic Events: The ultimate supply chain resiliency test, CSCMP, Illinois Horwitz, S (2009) Private Enterprise’s Response to Hurricane Katrina, The Independent Review, 13, (4) pp 511–28 Khan, O (2005) Managing risk by internalising product design in fashion retail: An exploratory case of Marks & Spencer, Indian Institute of Materials Management Koetse M, Rietveld, P (2009) The impact of climate change and weather on transport: An overview of empirical findings, Transportation Research Part D, 14, pp 205–221 Kramek, J (2013) The Critical Infrastructure Gap: US port facilities and cyber vulnerabilities, Center for 21 st Century Security And Intelligence at Brookings, USA Lezhnev, S and Hellmuth, A (2012) Taking Conflict Out of Consumer Gadgets, The Enough Project, Washington OECD (2007) The Economic Impact of Counterfeiting and Piracy, OECD, Paris Renaud, P (2012) The DHL Supply Chain (DSC) BCM10-Step Plan, CSCMP, Illinois Sony DADC (2011) Rebuilding the UK Supply Chain, in The Insider, Sony DADC, London Steele, J (2012) Leading Practices in Action with Cisco’s Japan Earthquake Response, CSCMP, Illinois Supply Chain Risk Leadership Council (SCRLC) (2011) Supply Chain Risk Management: A compilation of best practices, SCRLC, USA TenBarge, T (2012) Operational Risk Management, CSCMP, Illinois Wong, M (2005) The ICT Hardware Sector in China and Corporate Social Responsibility Issues, SOMO, Netherlands INDEX (italics indicate a figure or table in the text) Accenture 13, 23, 109 Accord on Fire and Building Safety 126 active errors 15, 17 Afghanistan 198–200 Agility 196–97 Ahold 130–31 air cargo/freight 114–15 combating theft 220–21 cyber crime 222–23 examples of heists 219–20 political disturbances and 162–63 price fixing 192–93 screening 158, 164 terrorist threat 157–62 air travel 21 Al-Qaeda 175 Al-Shabaab 228 Amazon 121, 129 Anham FZCO 118 APL Limited 198 Apple 26, 58, 115, 133, 149 China and 128–29, 147 see also Foxconn Asda-Walmart 123 ASOS 124 Authorized Economic Operator (AEO) programme 166 automotive industry 3, 47–56 Chinese due diligence on supply chains 135–38 globalization 50 industrial action 53–55, 120–21 Japanese earthquake/tsunami (2011) 50–52, 87–88 logistics operational failure 55 natural disasters and 50–53 outsourcing production 55–56 risk profile 47–50 supply chains 48–49 Thailand floods 52–53 Bangladesh 26, 94 Rana Plaza disaster 123, 125–26 Basel Convention 142 ‘Black Swans’ 12, 18, 19, 237 Bonmarché 125 Brazil 210, 218–19 Bribery Act (2010) 178 business continuity management (BCM) 35–36 risk standard 35–36 businesss interruption 36–37 definition 36 Cadbury’s 68 Camposol 130–31 Canon 132, 134 Carbon Disclosure Project 101 cargo crime 209–21 Brazil 218–19 Canada 216 combating 214–15, 220–21 definition 209 examples 219–20 food 211 metal 213 Mexico 218 pharmaceuticals 211 scale 210, 213–14 shrinkage 210 types 212 United States 216, 217, 218 Carter, President Jimmy 174 Cat Logistics 55 Cathay Pacific 61 Centre for Research on Multinational Corporations 130 ‘Certified Cargo Screening Program’ 158 ‘chain of custody’ 220 Chambers, John 41 China 113, 146, 177 Apple 128–29, 147 economy 110–11 e-waste 142 environmental standards 147 labour market 123, 131–32 Chinese milk scandal 68–69 Chrysler 2, 88 244 Index Cisco 57–58, 110, 127 case study 38–42, 111–12 Supply Chain Incident Management Team 41, 42 climate change 23, 92–104 adaptation 93–95, 101–02 Asia and 99–100 benefits 100–01 Dell case study 102–04 distribution centres and 101–02 Europe and 98–99 impacts 93–94 mitigation 93 raw materials and 101 transport systems and 94–95, 98 United States and 95–98 see also natural disasters Coca-Cola 34 Comigel 66 consumer confidence 67, 69 consumer goods sector 62–64 durables 63 electronics 127–29, 139 packaged 62–63 risk profile 62–63 Container Security Initiative (CSI) 167 Cook, Tim 128 corporate and social responsibility (CSR) 26, 123, 147–48 case study 148–49 see also environmental standards corruption 177–78, 238 Afghanistan 198–200 Africa 194–95 bribery 178 cartels 191–93 case study 182, 188–89 customs and 181, 183–86, 190–91 emerging markets and 179–80 EU 183–84 express sector 208 government contracts 196–98 humanitarian aid 200–04 illegal cigarettes 206–07 import tolls 193–95 India 193–94 legislation 178–79 narcotics 207 Russia 119 smuggling 187 VAT fraud schemes 189–90 vehicle theft 207–08 Council of Supply Chain Management Professionals 111 counterfeit medicines 73–75 CTS Corp 56 currency fluctuations 112–13 Customs-Trade Partnership Against Terrorism (C-TPAT) 164–66 cyber crime 29, 222–29 Port of Antwerp case study 223–24 DB Schenker 76 Debenhams 101–02 Dell 59, 89, 127, 129, 143 case study 102–04 demand shocks 109–10 Democratic Republic of Congo 133, 134–35, 238 DHL Supply Chain 120, 121 distribution Dubai Airports 161 due diligence e-waste 142–43 Africa initiative 143–44 Eagle Global Logistics (EGL) 197 Egypt 170–72 Electronic Industry Citizenship Coalition (EICC) 149 energy networks 19 ‘Enough Project’ 133, 134, 135 environmental standards 146 case study 148–49 mitigating risk 147–48 Escaith, Hubert 110 EU Directive on Waste Electrical and Electronic Equipment (WEEE) 140–41 EU NAVFOR (Europe Union Naval Force) 229–30 Europol Report on Cargo Theft 212 Express Association of America 162 Extended Producer Responsibility (EPR) 145 external disruptions 14 Eyjafjallajökull Volcano 89–91 Fair Labour Association (FLA) 128–29 Fair Labour initiative 123 fashion sector 69–72 ‘fast fashion’ 124 product life cycles 71 quotas 71 risk profile 69–72 supply chains 124–27 transport 71 FedEx 159, 160, 169, 208 Federal Drug Administration (US) 74–75 Federal Emergency Management Agency (FEMA) 81–82 Findus 66 Index Flextronics 127 food sector 64–69 cargo crime 211 Chinese milk scandal 68–69 fresh fruit and vegetables (FFV) 129–31 horsemeat scandal 65–67 packaging 153 regulations 67–68 risk profile 64–65 shortages in developing countries 150–55 storage 153–54 transport 152–53 Ford 2, 52, 88 due diligence on conflict minerals 135– 36, 137 Global Material Integration and Reporting portal 138 Foreign Corrupt Practices Act (FCPA) 178 Foxconn 58, 123, 127, 128–29, 147, 149 Freightwatch 210 fuel see oil Fukushima Gap case study 91–92 Geithner, Timothy 113 General Motors (GM) 1, 2, 54, 88 globalization 11, 177 ‘Gold Level’ planning 45 Good Corporation 179 government, role of 44–46 ‘Great Recession’ (2008) 109–10 Greece 181 Greenpeace 143 hazardous chemicals 139 Heriot-Watt University disruption to UK road freight network study 105–06 Hewlett Packard (HP) 143, 238 case study 134–35 ‘High Impact-Low Probability’ (HILP) 18 see also ‘Black Swans’ high-tech sector 3, 56–62 air freight 61 cargo crime 62 counterfeits 60 ‘demand shock’ 57 key risks 57 natural disasters 59 risk profile 56–57 sea freight 61–62 social responsibility 58–59 supplier visibility 58 supply chain issues 57–60 Thailand floods and 88–89 transport issues 60–62 see also technology Hoffa, Jimmy 205 Hon Hai see Foxconn Honda 50, 52, 53, 88, 89 horsemeat scandal (2013) 65–68 impact 68 supply chain 66 HTC 134 human networks 20 humanitarian aid 200–04 corruption risks 202– 03 Hurricane Katrina 45, 79, 81–85, 95, 107, 201 impact 84–85 private sector response 83–84 public sector response 81–83 transportation and 84–85 Walmart and 83–84 Hurricane Sandy 22, 79, impact on transportation sector 85–86 IBM 49 Icelandic Volcano crisis 19, 45, 89–91 ICT (Information and Communications Technology) networks 20 IKEA 116 Illegal cigarettes 206–07 IMS Health 72 India 193–94 industrial action/unrest 25–26, 53–55, 119–22 insurance 37 Intel 59, 89, 133, 138 case study 148–49 internal disruptions 14 International Brotherhood of Teamsters 205 International Civil Aviation Organization (ICAO) 159 International Longshoreman’s Association (ILA) 205 International Maritime Bureau (IMB) 228 International Material Data System (IMDS) 138 International Road Transport Union 211–12 inventory management 13 Iran 118 ISO 31000 33–34 ISO 22301 35–36 Italy 53–54, 122 Kallas Siim 160–61 Keihin Corp 51 Kenya 142, 144, 151 Safaricom project 145 245 246 Index King, Justin 64 ‘Known Shipper Program’ 158 J Sainsbury PLC case study 63–64 Jaguar Land Rover (JLR) 120 Japanese earthquake/tsunami (2011) 2, 23, 40–42, 50–53, 59, 86–87 impact on automotive manufacturers 87–88 see also Cisco case study Just in Time (JIT) delivery 1, 9, 16, 49, 60 labour 123–38 costs 131–32 fair 123–31 latent conditions 15 latent errors 15 lean inventory 1, 14, 16, 49 Lenovo 56 Liberia 201, 203 Lutz, Bob Marks & Spencer 71–72, 124 Matalan 124, 125 Merck 51 Mexico 210, 218 MG Rover 55 Microsoft 129 minerals, conflict 132–38 auditing supply chain 133–34 certification 134 ‘Enough Project’ 133, 134, 135 Hewlett Packard case study 134–35 mining in Africa 132–33 tracing supply chain 133 US legislation 133 Mississippi River 96–97 Motorola 133 Mullen, Michael 162 narcotics 207 NATO Operation Ocean Shield 230, 231 natural disasters 2, 14, 22–23, 79–82 cost 80 Italy 80 United States of America and 79 see also climate change Nestlé 69 network failure 19–22 Nigeria 182 piracy and 225–26, 234 Nike 102 Nikon 132, 134 Nintendo 134 Nissan 50, 87 Noble Corporation 182 Nokia 143 Safaricom project 145 North American Free Trade Area (NAFTA) 25 Novartis 212–13 ‘Oceans Beyond Piracy’ project 228–29, 234 OECD 135 Due diligence framework for supply chains 136 off-shored production oil 24–25 consumption 116–17 costs 54 industrial unrest 122 price volatility 115, 116–17 reliance on 11, 12 One Earth Future Foundation 235 Orlandella, Dante 14 outsourcing 120–21 packaging 153 Panalpina case study 182 Panama Canal 173–74 pandemics 23, 104–07 air cargo and 105 Peru 130 pharmaceutical sector 3, 72–77 cargo crime 77, 211 cold chain solutions 75–76 counterfeit medicines 73–75 risk profile 72–73 security 75 supply chain visibility 76 transport 75–76 Philips 143 piracy 2, 28, 169, 224–35 costs 229 hot spots 225–26 incidences 226, 232 naval operations against 229–30 Somali 226–32 South East Asia 233–34 tackling 235 West Africa 234 political disturbances 162–63 pollution 140 havens 146–48 Port of Antwerp case study 223–24 Primark 124, 125, 126 product life cycle production processes Public Private Alliance for Responsible Minerals Trade (PPA) 134, 135 Index Qatar Airways 160 quantitative easing 113 Quick Response (QR) manufacturing 79–80 Ralph Lauren Corp 183 Reason, James T 14, 15 recycling 140 Renesas 50–51 resilience 31–46 case study 38–42 industry sector 47–77 role of government 44–46 RESIST (Resisting Extortion and Solicitation in International Transactions) 184–86 Riken 52 risk register 34, 35 risks 237 analysing 13, 14–16 business interruption 36–37 cargo crime 27 corruption 27–28 cyber crime 29 drivers 9–12 economic 23–26, 109–22 environmental 22–2 external 2, 5, 6, 7, 9, 22–30 geo-political tension 27 industrial action 25–26 internal 2, 5, 6, 7, management 34 mitigation 11, 13, 37 piracy 28 quantifying 12–14 security 27–28 severity 7–14 societal 26, 123–55 technological 28–29 terrorism 27 trade disruption 25 top 11 Russia 119 customs case study 119 capacity problems 114 fluctuations 114 ‘slow steaming’ 114 Sichuan earthquake, China 80 Single European Market 25 Smiths Medical 73 Somalia 235 piracy 226–32, 234 Sony 61, 115, 132, 175 sourcing 13 South Africa 210 case study 29–30 Spain 54 Spanghero 66 stolen vehicles 207–08 Straits of Hormuz 172–73 Suez Canal 170–72, 234 economic value 171 vulnerability 171–72 Superstorm Sandy see Hurricane Sandy suppliers 110–11 environmental practices 138–49 ‘supply chain intelligence’ 32 supply chains agile 32 automotive sector 48–49 causes of disruption 14–30 disruption contingency 33 global risks 7, 10, 117–18 mapping 135–38 natural disasters 79–80 resilience 31–46, 48 threats 5–14 tiers velocity 32–33 vulnerability 1, 12 supply shocks 113–19 swine flu 23, 104 Swiss Cheese model 14–16, 19 ‘alignment of vulnerabilities’ 22 Swiss Re 22, 79 Syria 118 Samsung 115, 128 SARS crisis (2003) 21 sea freight security 164–74 container screening 167–69 cyber crime 222 terrorism 169–74 see also Panama Canal, Suez Canal, Straits of Hormuz Seagate 89 Sharp 134 Sharp, Anthony 233 shipping rates 113–15 Taleb, Nicholas 18 technology 2, 11–12, 31 supply chain resilience and 42–44 terrorism 2, 27, 157–75, 237–38 air cargo 157–62 Yemen plot case study 160–62 Tesco 66, 67, 124, 126–27, 140 Thailand 132 floods (2011) 6–7, 59 impact oh high tech sector 88–89 political disturbances 162–63 threats see risks 247 248 Index TK Maxx 124 Torrijos, General Omar 174 Toshiba 89 Toyota 6, 50, 54, 87, 89 recall of vehicles 55–56 trade links 25 trade restrictions 117–18 transport 11, 60–62, 71 climate change and 94–95, 98, 100–01 developing countries 152–53 organized crime and 205–08 nodes 10, 20–21 terrorist threat 174–75 UK road freight transport 105–06 Transportation Security Administration (TSA) 158–59 Transports Internationaux Routiers (TIR) agreement 119 Typhon 232–33, 235 Unilever 68–69, 116 US Customs Border and Protection (CBP) 159, 164–66 Automated Commercial Environment (ACE) 159 Simplified Entry Pilot 159 US Department of Homeland Security (DHS) 164, 167–69 container screening 168 VAT fraud schemes 189–90 velocity 32–33 Ver.di 121 Vessel Protection Detachments (VPDs) 232 Walmart 45, 83–84, 107 warehousing 153–55 waste 140–41 food 151 e-waste 142, 143–44 illegal trade in 141–45 mobile phones 144 regulation 142–43 water 139 wild randomness 3, 18 World Bank 146, 228, 234 World Economic Forum 11, 13, 23 Global Competitiveness Report 177–78 guidelines on corruption 184–86 Risk Response Network 31 Supply Chain and Transport Risk Survey 11, 24, 28, 109 supply chain resilience and 45–46 World Trade Organization 25, 110 counterfeit medicines 73 Yemen air cargo plot 160–62 Zara 71 Zurich Supply Chain Insurance 37 Allied with this, the evolving supply chain and production strategies of the major global manufacturers will heighten the level of risks inherent within various parts of the supply chain “Best practice” which creates lean supply chains – such as Just-in-Time logistics – also makes them more vulnerable to disruption Supply Chain Risk assesses the various sources of external threat to the supply chain, including environmental, geopolitical, economic and technological John Manners-Bell clearly describes the evolving risks to supply chains and how multinational corporations should be dealing with them at a strategic level He examines the lack of supply visibility that puts businesses at risk and includes case studies of best practice, as well as citing examples of when and how things go wrong Each case study describes: a company’s supply chain and production/ sourcing strategy; the catastrophic event that occurred; consequences to supply chain and management response; material losses incurred and resultant changes to company supply chain strategy There are also invaluable downloadable online resources including a survey on companies’ attitudes to supply chain risk This is an essential text for risk managers, supply chain managers, supply chain operators and anyone interested in risk management and its growing impact on the supply chain Kogan Page London Philadelphia New Delhi www.koganpage.com JOHN MANNERS-BELL John Manners-Bell is the founder and CEO of Transport Intelligence, a leading supplier of market solutions to the global logistics industry He is Chairman of the Supply Chain Council of the World Economic Forum and an adviser to the UN and the European Commission Prior to establishing Transport Intelligence, he worked as an analyst in consultancies specializing in international trade, transport and logistics SUPPLY CHAIN RISK Threats to supply chains have received considerable attention in recent years following the tsunami in Japan, floods in Thailand, bombs found on cargo planes and even volcanic ash clouds over Europe The risks themselves could well become more acute over the next few years, due to the increasing prevalence of natural disasters and the continued threat of terrorism Kogan Page JOHN MANNERS-BELL SUPPLY CHAIN RISK UNDERSTANDING EMERGING THREATS TO GLOBAL SUPPLY CHAINS [...]... called risk- agnostic’ (although a better term would be risk- neutral’) as it prepares supply chains for any type of threat Quantifying supply chain risk It is very difficult to measure the impact of an event on a supply chain and even harder to attempt to forecast the impact of a ‘potential’ event In many ways it is much easier to work out the costs of holding inventory in the system (the ‘internal’ risk) ,... response to this new environment would be to rebuild levels of ‘safety’ stocks However, as this book recommends, a smarter approach is to focus risk mitigation on the twin goals of supply chain agility and velocity The aim of this book is to alert executives, both present and future, to the risks that can impact upon supply chains, of which there are many It is designed to give the reader an understanding. .. measurable ‘internal’ risks into more difficult to measure ‘external’ ones Typically, whilst company metrics may include inventory-on-hand, stock turns and the like, there are no metrics to measure the resilience of a company’s supply chain to potential threats Consequently, as with insurance, there is a temptation to put off the premiums and ‘hope for the best’ 2 Supply Chain Risk Internal risks are those... globalization whilst accepted supply chain practice has driven managers to strip inventory to the bone In essence this trend has increased supply chains exposure to a host of new or evolving threats, especially in emerging markets, whilst removing their ability to maintain their primary function – security of supply – by denuding them of inventory Many corporations have discovered to their cost that this... re-balancing of the inventory/transportation equation as shippers position stock in closer proximity to end-users This will increase stock levels, but reduce transport costs Of course, as mentioned above, this has risks in its own right and these need to be taken into account in a holistic supply chain management strategy It could also entail a move from global supply chains to near-sourcing of products,... ‘safety’ stock has allowed production or sales to continue unaffected Insurance companies which are now entering the supply chain risk market are allowing manufacturers to out-source this risk, whilst keeping inventory levels to a minimum However, quantifying the risk for insurance companies (as well as the manufacturer) is a major challenge Understanding the causes of supply chain disruption Risk analysis... impossible to predict how and when a supply chain will be disrupted by a disaster, it is possible to engineer risk- agnostic’ resilience Visibility, responsiveness and agility will be critical elements in ensuring that supply chains of the future retain their competitive advantage These issues are dealt with in Chapters 1 and 2 3 A framework for 01 understanding risk An analysis of supply chain threats. .. Introduction the automotive industry has now taken a much closer look at its supply chains, right down to third tier suppliers and even beyond Different industry sectors have adopted varying strategies to improve their supply chain resilience depending on product attribute, production methods and customer base The high-tech sector, for instance, is particularly exposed to external risk as it has been... on a reliable energy source makes the supply chain and logistics sector highly vulnerable to power cuts 19 20 Supply Chain Risk Human networks Human networks are rarely analyzed in terms of risk to supply chains However, with the logistics and transport industry so labour intensive, the human angle is clearly a key vulnerability How many companies would be able to operate efficiently or at all if half... external and internal supply chain risk is very close Increasing inventory levels exacerbates risks of redundancy, wastage, shrinkage, financing etc but mitigates external risks (the impact of a disruptive event on supply) The reverse is also true; reducing internal risks by, for example, unbundling and out-sourcing production to remote suppliers leaves companies 6 Supply Chain Risk F I G U R E 1.1   ... Data Manners-Bell, John Supply chain risk : understanding emerging threats to global supply chains/ John Manners-Bell pages cm ISBN 97 8-0 -7 49 4-7 11 0-1 (paperback) – ISBN 97 8-0 -7 49 4-7 11 1-8 (ebk) Business.. .Supply Chain Risk Supply Chain Risk Understanding emerging threats to global supply chains John Manners-Bell KoganPage Publisher’s note Every possible effort has been made to ensure... Framework for Understanding Risk F I G U R E 1.2   Global supply chain risk – supply chain internal and external characteristics Supply Chain Characteristic Internal Risk External Risk High stock levels