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The Global Supply Chain: Understanding,Measuring, Mitigating and Managing Exposure in aSupply Chain Dependent Globalized MarketBy Daniel W. Gerber andBrian R. Biggie“You have to be very rich or very poor tolive without a trade.” 1WITH THE evolution of technologyand society, we have seen a drasticchange in the movement of goods andresources between countries. We haveadvanced from the days of trading silkand spices via ancient land routes to aglobal system that sends raw materialsand finished goods across the world byland, sea and air.Components are shipped from thepoint of manufacture to the point ofassembly and then to the point of sale. Aperfect example of this evolution is theauto manufacturing industry. The Ford F-150, often considered a symbol of theAmerican truck, while assembled inIllinois, is largely composed ofcomponent parts manufactured in Mexicoand China.The importance of maintaining thesafety and predictability of supply routesis not limited to component parts, butincludes commodities such as wheat orfruit. The United Kingdom imports 90%of its fruit and 60% of its vegetables. As aresult, supermarkets were in danger ofrunning out of these commodities duringthe height of the volcanic ash cloud thatinterfered with flights during the summerof 2010.1 Albert Camus.Daniel W. Gerber cochairsGoldbergSegalla’s GlobalInsurance ServicesPractice Group. Hemaintains aninternational practice incomplex insurance coverage andreinsurance matters, including thoseinvolving supply chain issues. He is theChair of the IADC’s Insurance andReinsurance Committee and a frequentauthor and national lecturer on insuranceand reinsurance issues.Brian R. Biggie, anassociate at GoldbergSegalla, concentrateshis practice on complexinsurance coveragedisputes and analysisand professionalliability. His experience includespreparing coverage opinions andlitigating insurance coverage mattersinvolving supply chain issues,employment-related incidents, third-partycoverage, and other issues. He haswritten and lectured on insurancecoverage for audiences nationally andabroad.Arguably the greatest strength of thisglobal economy, the relative ease inmoving parts and commodities, is thebasis for its greatest weakness—thefragility of the system and the concurrentsusceptibility to interruption. Thisdichotomy was noted by the recentlycreated National Strategy For Global
The Global Supply Chain Page 413Supply Chain Security, an articulation ofthe United States’ policy to strengthen theglobal supply chain. This January 2012report noted that the global system reliesupon an interconnected web oftransportation and infrastructure:“[W]hile these inter-dependenciespromote economic activity they also serveto propagate risk across a widegeographic area or industry that arisesfrom a local or regional disruption.” 2This article presents the advantages andweaknesses of the modern global supplychain and explores ways for participantsin the global economy to minimize ortransfer risks resulting from interruptionsin the supply chain.Part I considers the modern globalsupply system and analyzes potentialpoints of vulnerability. Understanding theevolution of this modern system and itspoints of vulnerability are key tomitigating risks along the supply chain.Part II analyzes the need for a participantin the supply chain to assess itssusceptibility to losses caused by tradedisruption and considers whatcontingencies should be addressed. PartIII addresses how a company can shift therisks of losses due to supply chaindisruptions to third parties. Developingstrategies for transferring risks orliabilities is critical in limiting acompany’s exposure and losses that canoccur when its supply chain is interruptedor broken.2 Office of the President of the United Statesof America, National Strategy For GlobalSupply Chain Security, at 2 (January 2012).I. The Modern Global Supply SystemA. It’s a Small World After AllOver the past 50 years we havewitnessed the growth of the globalizedeconomy. Global trade has become aprecondition to sustained profits asopposed to an economic advantageavailable to only a certain segment ofcompanies. Conceivably, the globaleconomy has reached a tipping point thatrenders it unlikely that we will ever see aretraction in the growth and/or reliance onthe global supply chain system. Today,more and more companies must managetheir global supply chain in order to staycompetitive in this new market place.Global supply chain is looselydefined as an international network ofcompanies that cooperate to convert ideasinto goods or services for customers. 3Partners in this chain must efficientlyexchange information as raw materialsare transformed to finished goods whiletraveling through the network’s physicalinfrastructure. Physical facilities includemanufacturers’ warehouses, wholesalers’distribution centers, retail chains’warehouses, and retail outlets. 43Barry Cross and Jason Bonin How ToManage Risk In a Global Supply Chain, IVEYBUSINESS JOURNAL, November/December2010.4 Russ Banham, Reducing Disruption in theGlobal Supply Chain, THE WALL STREETJOURNAL, available at http://online.wsj.com/ad/article/managingrisk-disruption.
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