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Potential supply chain disruptions in China resulting from natural disasters is a growing concern for senior-level executives at large multinational corporations, according to a study commissioned by Factory Mutual Insurance Co.
Should there be a natural disaster in China similar to the scale of the March earthquake and tsunami in Japan, supply chain disruptions would be greater given China's critical role in global manufacturing, the Johnston, R.I.-based insurer, which does business as FM Global, said Monday in a statement.
The “FM Global Supply Chain Risk Study” surveyed 100 financial executives from corporations with more than $1 billion in sales and concluded that disaster-related supply chain risks in China are a growing concern.
China is exposed to numerous natural threats such as earthquakes, windstorms, floods and tsunamis. It also has not fully embraced some risk management practices, such as those used in Europe and the United States, to mitigate its exposures, FM Global said.
“A natural disaster-related supply chain disruption in China would have far-reaching and long-lasting negative economic impact,” Vinod Singhal, professor of operations management at the Georgia Institute of Technology's College of Management, said in the statement. ”It would slow down the global economy because China is not only a major exporter of goods, but also a major importer of goods. It would cause shortages in many consumer and industrial products that could lead to inflation and devastate the share price of companies.”
Some 86% of the responding companies said they are more reliant on China as part of their supply chain than Japan. Some 95% of companies said they rely on China for their supply chain and are concerned about disruptions stemming from natural disasters.
The study also found that that 65% of the respondents are looking to collaborate with their suppliers to mitigate risks at their locations.
“Firms need to undertake proactive measures, such as finding several sources of supply so that they are not dependent on one company that may be adversely affected by a natural disaster,” Howard Kunreuther, James G. Dinan professor of decision sciences and public policy at The Wharton School of the University of Pennsylvania, said in the statement. “There needs to be a realization that the process of developing a resilient supply chain takes time.”