fiddling while supply chains burn

If the last couple of months haven't suggested just how vulnerable businesses can be, wherever they are located geographically or along the supply chain spectrum, I guess nothing will. That problems related to the U.S. housing market eventually led to economic chaos in Iceland says a lot about how interconnected we have all become.

For those whose livelihoods are closely connected to supply chains, the vulnerability comes as no surprise. For the last several years, nearly every industry conference has featured presentations on supply chain resilience or adaptability or agility. Much of that came out of concerns over how to prepare for disruptions resulting from physical events like hurricanes and fires, human actions like strikes and terrorist attacks, and other potential dangers—think bird flu. While financial disasters have not been at the center of most of these discussions, the same message applies: It is not pessimism to assume that in highly complex supply chains, something will go wrong somewhere, sometime and that preparation is essential.

A recent study published by the global consulting giant McKinsey & Co. in its business journal, The McKinsey Quarterly, indicates that supply chain executives are acutely aware of all this. The survey of C-level and operations executives in 49 countries revealed a consensus that "supply chain risk is rising sharply."

"Executives point to the greater complexity of products and services, higher energy prices, and increasing financial volatility as top factors influencing their supply chain strategies," the report on the survey said.

Issues of the moment appear to drive much of the thinking. For instance, energy prices were second only to complexity when respondents identified the most influential factors on supply chain strategy back in June 2008. My guess is that if the survey were conducted today, financial risk might vault to the top of the list.

That's not an indictment of short-term thinking. Businesses have to execute every day and deal with the issues facing them right now. It is the lack of corporate focus on major risks that raises a red flag. The results suggest that many companies are doing precious little to mitigate or prepare for those risks. "Despite the importance respondents place on these trends," the report says, "relatively few say that their companies are acting on them."

Given the severe challenges that businesses around the world face right now, that could be discouraging news. We can have the small comfort of knowing that businesses everywhere are very much in the same boat. The optimistic take on that: Those that do overcome some of the daunting challenges will likely have an enormous edge on the competition—once we plug those leaks.