Meanwhile, Chiquita Brands, a competitor, was able to maintain supply. “It increased productivity at other locations, such as Panama, and made purchases from associated producers in the regions that were not damaged by the hurricane. As a result, Chiquita’s revenues increased by 4 per cent in the fourth quarter of 1998.”

Another example in the book is about the July 2005 floods in Mumbai, which caused extensive losses to the pharmaceutical industry. “Cipla lost stocks worth Rs 20 crore, Ranbaxy nearly Rs 22 crore, Lupin about Rs 3.5 crore, and GSK Pharma nearly Rs 2 crore. Major consumer durable manufacturers including LG, Samsung, Videocon, Whirlpool, and Godrej & Boyce incurred total losses of Rs 100 crore… The companies claimed these losses from insurance firms, which reported a significant drop in profits.”

Not ‘lean’ logistics systems, therefore, but supply channels built around multiple suppliers or producing points, inventories, and mixed transport methods are best able to handle demand shocks, suggest the authors. “Inventories have been a primary way in which companies have dealt with disruptions. They act as a safety net or buffer when demand and supply do not match.”

Recommended read for managers.

With the sub-prime crisis continuing to wreak havoc in the financial world, lay readers have been pushed into learning many new words and terms. Such as, CDO (collateralised debt obligation). CDO transactions have become ‘increasingly complex’ in recent years, writes A.V. Rajwade in Handbook of Debt Securities and Interest Rate Derivatives ( www.tatamcgrawhill.com ).

“In their simplest version, the credit risk on a portfolio transaction is typically divided into at least three tranches, each carrying a different level of credit risk and hence coupon,” he explains. “By way of an example, a $200 million portfolio may have $25 million as the ‘first loss’ tranche, the next $40 million as the mezzanine tranche and the balance $135 million as the senior, or the safest, part of the debt.”

Worryingly, “Unbeknownst to most investors, some of the largest money market funds today are putting part of their cash into one of the riskiest debt investments in the world: CDOs backed by subprime mortgage loans,” wrote David Evans in an August 20-dated story on www.bloomberg.com .