Supply chain resilience is vital to robust business performance. Threats to resilience—such as depressed oil prices, natural catastrophes and the spread of terrorism—are keeping financial executives around the world up at night.
These and other threats are reflected in the 2016 FM Global Resilience Index, a global ranking of countries’ business resilience to supply chain disruption. FM Global is one of the world’s largest commercial property insurers. The Index, released this week, ranks 130 countries and territories according to nine drivers that can affect the vulnerability of a business in those regions.
Declining oil prices are at the root of Norway’s drop to second place in the third annual release of the Index. The oil producer was replaced by Switzerland, which was ranked 2 last year. Oil-rich Kuwait (ranked 59 this year, down from 50 last year) experienced one of the biggest declines, since its gross domestic product (GDP) was hit hard by lower oil prices. Economic productivity suffered similarly in Colombia, which fell from 110 to 119.
Crude oil prices, however, cut both ways. Armenia (ranked 52) and Malawi (ranked 84) are two of the biggest risers in the Index this year, driven by an increased resilience to oil shock. Since their consumption of oil has fallen, the countries are less exposed to the dynamics of the oil market.
Political risk, one of the nine Index drivers, can be a severe constraint on business resilience. A significant and topical component of political risk is terrorism. Already in 2016, there have been deadly acts of terrorism in such countries as Pakistan (ranked 117), Belgium (ranked 17), Côte d’Ivoire (ranked 58), Nigeria (ranked 116) and Turkey (ranked 79). The threat of terrorism is real and unabated.
For the second consecutive year, Ukraine (ranked 125, down from 107) was among those countries with the biggest drop, reflecting the high degree of tension within the country as well as with Russia (ranked 75).
The so-called Brexit debate, over whether the United Kingdom (U.K.) (ranked 20) should leave the European Union (EU), could impact the country’s future ranking in the Resilience Index. For those wishing the U.K. to remain in the EU, a vote for the country to leave could represent a significant risk to the U.K.‘s productivity and growth prospects. Should that result, the Index drivers affected by GDP (i.e., ‘GDP per capita’ and ‘oil intensity’) could be adversely swayed.
According to researchers, the 2016 FM Global Resilience Index aggregates data from authoritative sources to aid executive decision-makers evaluate key supply chain risks that can harm their performance. It also may help managers select suppliers, site facilities, and established supply chains to identify shippers who may be vulnerable.
“Resilient supply chains give businesses a distinct advantage by protecting their operational integrity, revenue stream, market share and shareholder value. A fragile supply chain, on the other hand, often harms the company involved, sometimes for the long term,” says Bret Ahnell, executive vice president at FM Global.
Top- and Bottom-Ranked Nations
Formerly ranked number two, Switzerland has traded places with Norway, reflecting the latter’s drop in oil revenue at a time of falling crude oil prices. Rounding out the top 10 in the Index, in descending order, are Ireland, Germany, Luxembourg, Netherlands, the central United States, Canada, Australia and Denmark.
The lowest-ranked country in 2016 is Venezuela (ranked 130) for the second year in a row, followed in ascending order by the Dominican Republic, Kyrgyz Republic, Nicaragua, Mauritania, Ukraine, Egypt, Algeria, Jamaica and Honduras.
Venezuela’s position at the bottom of the Index reflects its exposure to the twin natural hazards of wind and earthquake, perceptions of lack of control of corruption and poor infrastructure, as well as ill-perceived local supplier quality.
France (ranked 19) and the U.K. (ranked 20) retain their positions from last year, while Germany (ranked 4) rose by two places.
Three Regions of the United States The United States is segmented into three regions to reflect disparate natural hazards exposure:
United States Region 1, encompassing much of the East Coast, is ranked 11 in the Index.
United States Region 2, primarily the Western United States, is ranked 21.
United States Region 3, which includes most of the central part of the country, is ranked 7 in the Index.
The Metrics The FM Global Resilience Index ranks and scores on nine drivers affecting countries’ resilience to supply chain disruption, including GDP per capita, political risk, oil intensity, exposure to natural hazards, quality of natural hazard risk management and fire risk management, as well as control of corruption, quality of infrastructure and local suppliers. Scores for each driver are combined into three factors (economic, risk quality and supply chain), yielding a composite zero-to-100 score.
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