When the Port of Tianjin, China’s third largest, blew up, it sent shockwaves across the world. Around 160 people lost their loves and almost 800 were seriously injured by the explosions and consequent fires that engulfed the city caused by a blast from a warehouse reportedly containing hazardous materials. Anybody remotely familiar with industrial accident rates in China will not have been surprised by what happened in Tianjin. Workplace legislation has failed to keep apace with economic growth. In 2012, workplace accidents killed 70,000 people. That’s around 200 people a day.
For global businesses, with suppliers in all corners of the globe, this major incident once again gives reason to question and assess the possible risks that sit within their supply chain. How might individual suppliers be impacted should they be exposed to those risks? And what is the knock-on effect to the company at the top of the chain?
In fact, the answer to this second question can be found in a the fall-out of a long list of previous incidents – from the widespread pollution caused by Deepwater Horizon, to the sad deaths of the Rana Plaza factory workers when it collapsed, to the brand and customer-loyalty damage caused by the European horsemeat scandal. The repercussions of supply chain disruption to the financial health of a business can be devastating. A recent study by Hendricks and Singhal – which analysed 800 instances of supply chain disruption – found that companies on the receiving end experience a drop in sales of 93% on average, and a fall in shareholder returns of between 33 and 40% over a three-year period. Share price volatility was also 13.55 higher, and operating income declined by 107%.
More stringent legislation will no doubt encourage companies to be more aware of what is happening in their supply chains. Hot on the heels of California’s Transparency in Supply Chains Act, demanding explicit information from manufacturers and retailers doing business in the US state, the UK’s Modern Slavery Act – which came into force in October 2015 – requires large businesses to publish a statement on what, if any, anti-slavery and human trafficking precautions they have in place. Non-compliance will see big business targeted by NGOs and government bodies, and it is hoped that the new laws will make companies renew, or create from new, more stringently-enforced policies to guard against issues such as forced labour at any point in their supply chain.
The true impact of instances like the Tianjin port explosion will not be understood for several years. And for those exposed to the disruption it has brought about, the lessons that are being learned are painful and costly. Do you know what impact a similar disruption to your supply chain, in China or elsewhere, would have on your business productivity, ability to carry on business as usual, or your brand reputation?
It might just be time to find out – and take action to minimize your exposure to the risk in the first place.