Iceland's Volcano Does a Number on Global Supply Chains
April 24, 2010
The vulnerability of global supply chains was evidenced yet again with this month’s volcano in Iceland, which crippled air cargo throughout Europe for days.
In South Carolina, the BMW Manufacturing Co. was forced to slow production because leather seat covers from South Africa and transmissions and other parts from Europe were grounded.
The UK’s Tesco experienced disruptions in produce and flower imports from Kenya.
In fact, perishables and other time-sensitive cargoes were significantly compromised by the volcano. New York City’s Flower District typically receives it Dutch flower shipments on Friday nights. But thousands of dollars worth of tulips, peonies, daffodils, and hundreds of other varieties usually come in on the Friday night flights didn’t make it on April 16th.
Migros, the Swiss supermarket chain, saw shipments of green asparagus from the U.S. affected, while cod from Iceland and fresh tuna from Southeast Asia were also impacted.
Italian producers of mozzarella and fresh fruits lost about $14 million each day that flights were grounded, while combined losses for all the airlines hit a staggering $1.7 billion, according to the International Air Transport Association.
The biggest integrators-UPS, DHL, and FedEx-moved as much freight as possible through Spain and neighboring southern European countries. However, with UPS and DHL’s European air hubs in Germany and FedEx’s in France, there was only so much they could do.
Meanwhile, some companies fared better than others. For its part, HP’s UK channel manager for enterprise storage, servers and networking, confirmed that the company had activated its business continuity process “to ensure hat disruptions to the HP supply chain are minimized.”
The importance of having a risk strategy in place cannot be emphasized enough.
Marsh, the world’s leading insurance broker and risk adviser, issued business continuity, supply chain, and insurance advice to companies affected by the eruption of Eyjafjallajökull.
“Many organizations have already begun implementing business continuity plans,” the firm stated last week. “Businesses that have kept these up-to-date, well-tested and flexible will be better placed to cope with threats to their supply chains, the challenges of staff absence, and potentially severe financial implications than those businesses that have not.”
Among other things, Marsh recommended that companies “consider how they are best able to service customers, suppliers and key stakeholders if operations are disrupted and give early warnings of any problems.” Furthermore, companies should “review the possibility for the temporary switching of some activities to other sites that may be less impacted and/or who have suitably experienced staff available,” and high on the list, “revisit their business impact analysis (BIA), particularly the risk assessment of critical activities-and consider underpinning resources such as availability of transportation systems, routes and suppliers.”
Volcanos may not have been on the top of many companies' “What if?” list, but it probably is now.