Improving Resilience to Supply Chain Disruption

Whether it be a heightened risk of terrorism, the prolonged decline in oil prices, an impending natural disaster, the risks of accidents due to inadequate safety practices, or an abrupt corporate crisis, external risks to business operations are not trivial. For business executives, such events can disrupt their companies’ global supply chains, making a focus on resilience vital.

Resilience against disruption in the global supply chain is a valuable asset, enhanced by an understanding of the drivers of resilience. The results of the 2016 FM Global Resilience Index highlight areas of strength and vulnerability in the global supply chain, providing a useful resource for investors and business executives seeking to manage resilience.

Resilience is the ability to withstand disruption and rebound quickly when necessary. It is especially vital for global companies doing business in a fluid, borderless manner, facing unknown risks in developing markets. The Resilience Index presents an annual ranking of 130 countries and territories according to their business resilience to supply chain disruption.

The scores that generate the ranking are calculated as an equally weighted composite of nine core variables that affect resilience significantly and directly. The key results of the 2016 survey:

• Switzerland is the new occupant of the top position in the index, reflecting the country’s high scores for an extensive and efficient infrastructure, prime quality local suppliers, strong economic productivity and resilience to oil shock. Following on ranks 2 and 3 are Norway (down from last year’s top rank) and Ireland, respectively.
• Germany (4) improves slightly by rising two positions, while both France (19) and the United Kingdom (20) retain their positions from last year.
• Armenia (ranked 52) and Malawi (84) are two of the biggest risers in the index this year, driven by an increased resilience to oil shock as their consumption of oil fell relative to economic productivity.
• ASEAN members Singapore (23) and Malaysia (26) are the top-ranked Asia-Pacific countries, followed by Sri Lanka (41) and Taiwan (49). China appears on position 57 and India ends up on no. 107 only a few ranks higher than the ASEAN member countries Myanmar, the Philippines, Indonesia, and Guayana.

The Biggest Movers 2016

Among the top risers in the 2016 index (countries that have jumped more than ten places) are 9 Asian countries and one African state. The rise up the index for Armenia (ranked 52) and East African country Malawi (84) has been driven by an increased resilience to oil shock. Given that GDP has been largely stable for the two countries, the shift has been due to a fall in the consumption of oil, making the countries less exposed to the dynamics of the oil market.

The following group of countries has benefited from an improved commitment to fire risk management: Bangladesh (ranked 85), Cambodia (92), Nepal (94), Sri Lanka (41) and Vietnam (83). In contrast, the improvement in the rankings for Kazakhstan (71), Mongolia (87) and Tajikistan (101) has been driven by an improved commitment to natural hazard risk management and, to a lesser extent, an improvement also in the relative exposure to natural hazards.

Other Asian countries that appear among the biggest fallers for 2016 are Guyana (ranked 113) and Taiwan (ranked 49), however, they dropped back this year following their significant improvement in commitment to natural hazard risk management shown last year.