The usual effects of Mideast turmoil such as market volatility, spikes in crude oil, and a scrambling US State Department should come as no surprise with the current uprising in Egypt. But the revolt has global markets biting their nails over supply chain concerns by way of the Suez Canal.

Suez shippers expect delays as a result of everything from Egypt's downed communications systems to erratic office hours throughout Egypt and along the canal. Thankfully, beyond delays, most analysts agree that full-blown supply interruptions are unlikely. Revenue from the Egyptian military-controlled Suez Canal accounts for 3.2% of Egypt's GDP. Whichever government comes to power after the dust settles would be foolish to do anything that might adversely affect this important shipping artery. So while our prized Egyptian cotton is safe (cotton goods and clothing are our second-largest import from Egypt behind natural gas), the situation along the Suez Canal highlights a broader issue for supply chain managers: risk management.

Disruptions to the supply chain can increase related costs in everything from expediting, premium freight, obsolete inventory levels, additional transactions, and storage, to penalties paid to customers. Kevin Hendricks and Vinod Singhal of Management Science Journal estimate that an announcement of a supply chain disruption can cause a nearly 10% drop in a stock price, based on a sample of 500 related company announcements. Severe disruptions can have a brutal long-term effect on profitability.

Disruptions cannot ever be fully predicted, but there are a number of precautions that should be taken and built in to each link of the supply chain to limit exposure to risk factors. Risk identification, risk assessment, correction, and monitoring are all a part of our comprehensive strategic sourcing services profile at Source One. Is your supply chain at Risk?
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Scott Decker

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