The stakes are high for economies and multinationals. The jolt is not comprehensively visible yet, nor is the timeline and eventual claims, making enterprise risk management, preparation, planning and alternative sourcing even more challenging.<\/p>\n
Corporations around the world are justifiably concerned that potential quarantine, limited transportation capacities, travel bans, employee implications, and sourcing restrictions may well hit their flow of production, goods distribution and ultimately earnings in 2020. The fundamental question is not just for how long, but also to which thresholds of size, growth rate and cross\u00ad\u2010border spread.<\/p>\n
Let us play around with a few numbers and assumptions for illustrative purpose in the case of Wuhan. If we triggered a \u2018tested\u2019 but sequential crisis management plan for supply chain issues, realistically, an affected not China based company had on average between two to three weeks from the identification of the breakout to the actual lockdown in Wuhan. Finding a sourcing alternative much depends on the original level of sourcing (sole, single, dual or multiple), respective industry demand and available component offering.<\/p>\n
In case of an interference or interruption loss companies are confronted with three phases (event, business impact, business recovery). The core business interference or interruption problem will hugely differ whether sourcing and financial planning is closely aligned and there is little dependence recognized on sole\/single source suppliers. Such circumstances become particularly visible when the company enters from Phase I (event) to Phases II (business impact) and finally Phase III (business recovery). Past business interruption experience suggests that the differences could well be 3\u20106 months and depend a lot on management engagement and business leverage capabilities. Having said that due to the unparalleled nature of the COVID\u201019 surge, despite some similarities to SARS, and each company\u2019s individual circumstances i(industry, insurance coverage, sourcing strategy and enterprise risk management), it\u2019s too early to make currently a reliable prediction around the length of the respective phases, their impacts or in particular duration of a potential business interruption loss.<\/p>\n
Perfect examples are just in-\u00ad\u2010time supply, order anticipation, stock optimization, predictive maintenance, incident and accident forecasting. This list growing day-\u00ad\u2010by-\u00ad\u2010day and myriad applications are developed to push existing and new business models forward but at unparalleled competitive margins. The focus is on impacts and alternatives become apparent in minutes, hours, in exceptional cases days but not weeks. Consequently, any financial and sourcing implications must become much more aligned allowing possibly reducing marginal prediction error, earnings volatility and ultimately business interruption loss.<\/p>\n
The interference in the production cycle of so many companies, our daily life routine and most important health have amplified nations crave to control instantly its shock. It becomes already progressively evident that the virus could massively damage global supply chain, causing huge business interference or interruption claims, possibly beyond SARS implications, and costing the global economy profoundly.<\/p>\n
Company values are less and less dependent on tangible assets and more dependent on intangible assets such as secured supply chain capabilities, IP, reputation, brand, knowledge and customer data. The late surge of COVID-\u00ad19 has rattled nations, and threatens companies that depend not just on single or sole source supply. Even beyond, companies are looking at alternative suppliers as facilities in affected cities or nations run into likely production and delivery delays. The unpredictability and scope of the outbreak have certainly massively increased in February.<\/p>\n
In enterprise risk management we try to plan for natural catastrophe, social and economic deviation, regulatory change and nowadays cyber attacks and pandemic outbreak. However, this event is much more unruly than others. With COVID-\u201019 there is much shorter incubation time fostering quicker decisions in a highly contagious environment and interconnected economy. Contagion is not new to the world of enterprise risk management, but there are major differences with COVID\u00ad\u201019. It\u2019s the way this exposure spills across different industries, the global economy and may put many companies including multinationals on the back foot.<\/p>\n
At this moment, nobody should any longer underestimate the risk spread of COVID\u00ad\u201019. It is not a black swan event anymore, rather unparalleled with unprecedented risk nature and challenges. Without a managed risk approach to pandemic risks supply chain, business interruption and liability exposures, economies and corporations could suffer from outlier losses, eventually causing unforeseen financial losses and reputational harm. COVID\u00ad\u201019 is truly global exposure and partially manmade. Due to its nature, risk diversification is much less achievable. These ingredients carry huge potential for large aggregate losses as a single event (outbreak COVID\u00ad\u201019) may trigger many independent enterprise risk categories and possibly company\u2019s different insurance policies. Some of these policies may also include pandemic exclusions clauses.<\/p>\n
The importance of supply chain management and crisis management must focus on drivers such as cutting response times, increasing alternative sourcing capabilities, reiterating the importance of visibility across the corporate, divisional and individual managerial responsibility level with its implication on the company\u2019s sourcing and network capabilities.<\/p>\n
The driver behind this conclusion is the massive growth of an interconnected society that can be interfered or interrupted (pandemic exposure) or compromised (cyber risks). Initially, connectivity will be a competitive edge but quickly become core to survival. This development does not just serve pure living and business reasoning, but helps ethical, environmental or resource-\u00ad\u2010saving ambitions that are of the utmost importance in our densely populated world.<\/p>\n
We recognize first adverse impacts, for instance on tourism, manufacturing, electronics, aviation, travel, global trade and human beings. The current perceived implications on financial markets and economies are backed by news covering event cancellations, component shortage, travel bans and impacts on human beings (sickness\/fatalities) and very much depend on country and geography. The importance and role of enterprise risk management and in particular proper supply chain, crisis and business continuity management has never been more important than now.<\/p>\n
Peter Hacker is available for a consultation in times of COVID-19!<\/p>\n","protected":false},"excerpt":{"rendered":"
The stakes are high for economies and multinationals. The jolt is not comprehensively visible yet, nor is the timeline and […]<\/p>\n","protected":false},"author":16,"featured_media":48596,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[16565],"tags":[],"class_list":["post-54817","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"acf":[],"yoast_head":"\n