9 Critical Criteria for Global Supply Chain Expansion

Your business is growing and you’re starting to look at locations for your next manufacturing plant. The new facility needs to be close to your customers and convenient for shipping with affordable labor, real estate and taxation.

Your CFO and supply chain manager create a scorecard reflecting this set of criteria. They evaluate destinations and pick the winner. You sign off.

If you haven’t looked deeper, however, you might be missing vulnerabilities that are making your supply chain fragile and putting your business at risk. Fragility is not what you want: When your supply chain breaks, you lose revenue, market share, shareholder value and the integrity of the brand – damage against which you cannot insure.

“Strong economies contribute to resilient supply chains.”

Given such financial stakes, here are 9 additional criteria you should consider to make your supply chain resilient.

GDP per capita. Strong economies contribute to resilient supply chains. Per capita gross domestic product is useful when comparing one country or one state to another, because it shows relative performance.

Political risk. Countries like Ukraine and Greece are experiencing conflict, upheaval and attendant economic issues that can jeopardize a business. What are the political conflicts in the countries you’re considering for a new plant? Also, do these regions have histories of terror or signs of increasing threats? (The World Bank offers helpful insights on political risk.)

Oil intensity. How heavy is oil consumption in the regions you’re considering? The greater the consumption, the more vulnerable a country is to an oil shortage, disruption or price hike. A good metric is oil consumption divided by GDP (the US Energy Information Association has helpful data).

Exposure to natural hazards. No country in the world can be absolutely unexposed to wind, flood, fire or earthquake. Some regions, however, are far more exposed to particular hazards than others. Understand where your candidate countries or states lie on the spectrum.

Natural hazard risk management. Given the prevailing natural hazards, what is the culture of the region when it comes to risk management? How strong are the building codes? How vigilant are officials in enforcing building codes? Is there access to flood management and other loss prevention equipment?

Fire risk management. Fires are expensive and one of the most common causes of property damage at commercial facilities. Fortunately, they are preventable when there is a strong commitment to risk management. Also consider how rigorous the fire codes are and whether they are enforced.

Corruption. How extensively is public power exercised for private gain in the places you’re considering for your new plant? How much control do elites and private interests hold over private citizens and public property? Are you prepared to deal with business cultures that are quite different from your own?

Infrastructure. How sound are the transportation, telephony and energy systems of your candidate locations? What will happen to your plant if the electricity goes off for an hour every month? For some manufacturers, that would be a welcome break for workers. For others—say, those working with molten metal—an outage could become a manufacturing crisis.

Local supplier quality. Are the people and businesses that would support your plant reliable? Do they have proven track records you can verify?

We believe these criteria are so important that we’ve aggregated data for them across 130 countries and territories around the world. The data is online, interactive and available at no cost so that anyone can roll up, slice or dice the information at any time to prioritize their risk management and investment efforts as well as to guide their strategy. Use it when you need it, or at least think about the criteria I’ve laid out before you let a shovel hit the ground or sign a contract with a supplier in a new location.

Thomas A. Lawson :Thomas A. Lawson is president of FM Global, a $5.6 billion mutual insurance company dedicated to property risk management. Visit http://www.fmglobal.com.