Disruption of the supply chain, the Pandora’s box

Globalization, which started following the fall of the Berlin wall, has paved the way for an economic competition at the global level. The new prevailing model not only requires free flow of goods and services but it also leads to the State’s withdrawal for the benefit of corporate business.

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In order to survive and prosper, the companies are required to remain competitive, hence the never-ending quest for lower costs. Relocated, they now choose their suppliers and sub-contractors according to production costs and tax incentives granted by host countries.

Outsourcing business has been prompted by the dissemination of new technologies which facilitate coordination and trade among several production sites.

The downside, this global organization of labor has, nonetheless, triggered an overhaul of corporate functioning, with companies getting entangled in a complex network of sub-contractors, suppliers, joint-ventures that is getting harder and harder to manage.

The dysfunction of one link in the logistic chain will have far-reaching consequences. An earthquake in Asia, the sinking of a container ship, a strike in a port or a political crisis will no longer be confined to the area concerned but the consequences are spilt over to affect an infinite number of players located in the four corners of the globe. The quest for protection is henceforth indispensable. These new risks now stand for new development opportunities for the insurers to seize.

Disruption of the supply chain, the Pandora’s box

Atlas Magazine N°152, June 2018 [1]