Almost Unthinkable? The Scariest Threat To The Supply Chain

As flood waters from northern Thailand in 2011 gradually moved southward toward industrial parks that were home to one-quarter of the world's hard-drive manufacturing, the reaction was quick, indeed almost rehearsed: Shut down the power; move as much machinery, material, and finished product as possible to higher ground; sandbag the entrances; and make sure personnel get home in time to ensure their families' safety.

Contrast that to the reaction to Severe Acute Respiratory Syndrome (SARS), a pandemic that in 2002 quickly spread from China to other parts of the world.

As awareness of the virulent nature of SARS became known, there was no textbook reaction.

Even though the 774 deaths attributed to SARS worldwide was much less than more common influenzas caused every year, the nature of SARS -- easily transmitted between people, no vaccination, no cure, high mortality rate -- gave rise to all manner of reactions, few of which were warranted.

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Commercial airlines flew from the U.S. to Taiwan with as few as two or three passengers. Asian pedestrians purchased so many N95 surgical masks despite their dubious value that shelves across the U.S. were emptied by people looking to send them to relatives in Taiwan and China. Travelers entering many countries were met by security personnel with devices aimed at quarantining anyone with even a minor fever.

While blows to physical infrastructure such as factories losing power or sustaining damage in a flood or earthquake grab headlines on a regular basis for disrupting global business, it is the possibility of a pandemic such as SARS that scares those whose job it is to protect the public or protect the supply chains.

Pandemics are high on list of the most likely causes of critical disruptions in the supply chain going forward, said Dr. Erwann Michel-Kerjan, adjunct associate professor for the Wharton School and managing director of the Wharton Risk Management and Decision Processes Center.

Michel-Kerjan said that, based on experience from the 2003 SARS outbreak, a full-blown pandemic could sicken or kill millions and shut down all international transportation and, with it, worldwide trade.

The fact is, Michel-Kerjan said, nobody wants to think of that scenario. "With past pandemics, there was no big impact."

A SARS-like outbreak would be catastrophic, said Erik Stromquist, COO of CTL, a Portland, Ore.-based system builder that depends on components from Asia to build its systems.

"There's no way to plan for that," he said. "We'd be unable to do anything about that."

However, there are those who do study the possibility of a pandemic.

The U.S Department of the Treasury, working with multiple financial organizations, in 2007 studied the ability of 2,700 financial companies who volunteered to take part in a three-week exercise of their ability to survive a pandemic flu.

In the follow-up "Pandemic Flu Exercise of 2007 After Action Report,” exercise, the companies used absenteeism rates of up to 49 percent of employees to stress contingency plans and critical infrastructures, and found that a pandemic would cause significant impacts on the financial services sector, but the sector would still continue to operate.

In a declassified 2009 document from the U.S. Northern Command titled "Concept Plan to Synchronize DOD Pandemic Influenza Planning," the U.S. military assumed a pandemic influenza of multiple waves that would start outside the U.S. but eventually enter the country, affecting 30 percent of the population. About half of those infected would seek treatment, with 2 percent of the infected, or about 2 million people, dying.

Such a scenario would overwhelm government services, and would result in restrictions in international and interstate transportation, according to the Northern Command. Schools would be closed, public gatherings would be limited, quarantines and sequestration of citizens would be implemented, and shortages of consumer goods would occur as people rush to stockpile necessities, according to the report.

The Northern Command estimated it could take four to six months to develop an effective vaccine, and that up to 40 percent of the workforce "may not be capable of executing their missions during peak weeks due to illness or caring for the ill."

The International Monetary Fund, in a 2006 report titled "The Global Economic and Financial Impact of an Avian Flu Pandemic and the Role of the IMF," wrote that estimates of death from a future outbreak of the virus is impossible to estimate, but it uses a range of 2.0 million to 7.4 million deaths worldwide for planning purposes.

The economic impact of such an outbreak would be immediate, but economic recovery would be relatively fast, the IMF wrote.

"Economic disruptions on the supply side would come directly from high absenteeism, as people may be asked to stay at home, or may choose to do so to care for sick relatives or because of fear of being exposed themselves. There may also be disruptions to transportation, trade, payment systems, and major utilities, exposing some financially vulnerable enterprises to the risk of bankruptcy. Moreover, demand could contract sharply, with consumer spending falling and investment being put on hold," it wrote.