@Risk

Gillian Tett penned a thought-provoking article in yesterday’s Financial Times.

In “Global insight: New world of supply chains”, Tett poses the question: What do the fields of modern finance and supply chain management have in common?

The answer, of course, is globalization.

These days, capital markets are integrated globally –and supply chains are, too. But, in either case, does this integration offer improved efficiencies and greater stability (as some models predict it should)? Or, does all this international complexity create new vulnerabilities that simply eclipse potential benefits?

Clearly, the financial turmoil over the past year has forced bankers to re-think assumptions about globalized money markets. Now, as Tett points out, manufacturers are beginning to look at their complex, international supply chains through a newly focused critical lens, as well. Perhaps concerns about rising energy prices, “green” regulations, and other compliance issues will force a return to more simplified, regional supply chains?

Tett is right about this: The answer to that question is not clear-cut, and we’re going to hear “plenty more debate on the ‘supply chain’ issue.”

After all, in many ways, the risks and vulnerabilities of globalized supply chains crept up on corporations like hot water on a boiled frog. (You know, the metaphorical frog that happily sits on the stove in a pot of water, not recognizing the danger it’s in as the temperature of the water slowly increases.) A supply chain network that crisscrosses the world doesn’t just happen overnight, and likewise, it will take some time to fully understand and respond to the risks that have developed.

But, if the banking crisis has taught us anything, it’s that supply chain risk management work needs to begin in earnest now.

Remember, the boiled frog anecdote isn’t literally true. A real frog jumps out of the pot before the water gets too hot.