- Risk Management
In the fall of 2009 MIT CTL conducted a global survey of supply chain risk experiences, attitudes, and risk management practices. Over 1400 supply chain professionals from 70 countries participated. Respondents rated the frequency of internal risks (caused by their own business practices and business partners) and external risks (caused by natural disasters, economic recession, civil unrest, governments, etc.). As a group, internal risks were universally judged to occur much more frequently than external risks. Supplier failure and product quality issues were the most frequent internal risks, and economic recession was the most prevalent external risk. The frequency and mix of external risks varies significantly from one country to the next but some locations such as Mexico and West Africa seem to have more than their fair share of risks.
The survey showed that the "importance" assigned to each type of risk closely corresponds to its frequency of occurrence. Internal risks, although much less catastrophic than natural disasters, were considered to be more important to the supply chain than external risks. We believe that supply chain and business managers have a "Risk Comfort Zone" where most of their attention on the more frequently occurring internal business-related risks is focused. Managers have likely experienced these risks multiple times in their careers and feel empowered to prevent them. By contrast, natural disasters are assigned the least importance. Most respondents have likely never been in a hurricane or an earthquake. Although natural disasters and disruptions occur daily around the globe, supply chain managers do not seem to consider the global reach of their supply chain when prioritizing risks and allocating their efforts. People seem to think about the "point" impacts of risk events but do not think about their "network" impacts.
This study recommends that supply chain managers become more aware of the different types of risks that affect their global trading partners in different countries. They should also focus more on the network impacts of risks on their global supply chains, not just the risks that affect their own location.
This white paper is part of a series of three papers that describe the results of the MIT CTL risk survey. Each paper is accompanied by a short video. The papers and videos are available at: http://ctl.mit.edu/research/global_scale_risk_initiative.