With the never-ending news about the huge product recall by Mattel over concerns about lead paint used in millions of popular toys manufactured for the company by a Chinese contractor, and rising scrutiny over the safety of offshored products generally, it's worth remembering the seminal research done in 2003 by Kevin Hendricks of The University of Western Ontario and Vinod R. Singhal of Georgia Tech showing the clear impact "supply chain disruptions" have on company profitability and share price.

As the chart below shows, companies announcing Supply Chain Disruptions had stock prices that significantly lagged their peers over a three-year period (one year before the announcement, through two-years afterward). When controlling for factors such as the size of the company, vertical industry, etc., Hendricks and Singhal found companies announcing Supply Chain Disruptions experienced stock prices that were down on average between 32-41% from their industry peers over those three years, representing tens of millions or even multi-billions of dollars of market capitalization.

CEOs lose their jobs over that kind of relative stock market performance. That fact, and the profitability and stock price losses from important Supply Chain glitches, show why aggressive risk management and supply chain controls are well worth the cost of this "insurance."