The effect of natural disasters on supply chain risk

Abstract

The subject of supply chain risk has always been given importance but since the earthquake that struck Japan in March 2011, supply chain risk has been given more priority from manufacturing companies, suppliers and customers. The earthquake was the event that alarmed manufacturing companies, local and international, and made them more wary of unexpected events such as natural disasters. It has affected many international manufacturing companies. Toyota, Nissan, Honda, Apple and Toshiba are examples of manufacturing companies that were affected by the earthquake of Japan. Due to this natural disaster, production at many companies came to a standstill and this delayed supplies to the customers. Others had to close their manufacturing plants spread in different areas due to a shortage of supplies and also as a precaution. This was not the only natural disaster that affected manufacturing companies. In 2011, the Thailand floods left some companies like Intel and Western Digital with a shortage of supplies and also brought about a shutdown of plants. This research study explores the effects of natural disasters on supply chain risk involving local manufacturing companies. One of the major manufacturing companies in Malta, was indirectly affected by the Japan earthquake. This was caused by a supplier's inability to deliver the raw materials. Similarly, another local manufacturing company was affected by the heavy snowfall that overwhelmed Europe earlier this year. The manufacturing company had difficulties in distributing the finished goods. The study also concludes that insurance companies are also affected by natural disasters. A local insurance company, was affected by the Japan earthquake. This happened because the insurance company is reinsured with international reinsurers who have investments in different territories. Some of the investments in certain territories were affected and this led the insurance company to increase its insurance policy prices. This study also explores the measures that both local and international companies take to prevent the effects of supply chain disruption. Such measures include those related to the risk management process, the acquisition of alternative supplies, and the setting up of warehouses separated from manufacturing plants.