Upfront: Number-One Revenue Threat: Supply Chain Disruptions

Risk control is crucial when globalization and outsourcing stretch the supply chain to the limit.

Among the lessons companies learned from the disastrous hurricane seasons of the past two years along the Gulf Coast: Few businesses are immune to supply-chain shocks. Even organizations remote from natural disasters may find their supply lines -- already pulled taut by global sourcing, supplier consolidation and just-in-time initiatives -- stretched to the breaking point.

The growing threat of supply-chain disruptions is a top-of-mind concern for many business leaders, according to a Harris Interactive survey commissioned by Johnston, R.I.-based FM Global, a commercial and indus-trial property insurer. The survey polled some 600 finance executives in large organizations around the world. When asked to identify the top risk that affected their company's primary revenue driver, 25 percent of respondents from North American companies and 19 percent of those based overseas -- the largest proportion in both cases -- chose supply-chain exposures.

Despite increased attention given to the threat of terrorist attacks and recent corporate accounting scandals, particularly in the United States, only 5 percent of North America-based respondents chose terrorism or sabotage as the top risk, and just 4 percent of that group selected management or employee malfeasance. The survey identified regulatory issues and increasing competition as the most important emerging risks for North American companies.

Organizations in the North American group allocate 56 percent of their risk management budget to loss prevention and control and 44 percent to risk transfer. Among overseas companies, the ratio is similar, at 58-42.

"With globalization and outsourcing stretching the supply chain and introducing new and never-before-anticipated business challenges, the findings suggest many companies may want to ensure they are doing all they can to deter a disruption of any kind," says Ruud Bosman, executive vice president with FM Global. "At the same time, it's encouraging to see so many companies focusing on risk control rather than simply buying insurance to cover losses. The most progressive financial executives do not wait for a disruption to their businesses to demonstrate the value of investing in risk quality."

Bosman adds, "Companies that manage their risks properly and communicate the effectiveness of such efforts to their many stakeholders will find they not only gain a competitive advantage, but also boost financial performance, enhance shareholder confidence and help protect the value their businesses create."