26 June 2013 | Andrew Allen
Companies are finding it increasingly difficult to control their supply chains and the cost of failure is higher than ever, according to a report by the association for risk management professionals Airmic.
Supply chain failures claims firms are leaving their reputation in the hands of suppliers because they don’t understand how they operate or have adequate risk management strategies in place.
Airmic technical director Paul Hopkin, said: “The relentless pressure to cut prices has led to the creation of supply chains of mind-boggling complexity and business models that no-one properly understands. When you consider the speed with which information travels, boards should not be surprised when public relations disasters such as the horse meat scandal take place.”
The report identified seven underlying factors that tend to be present whenever supply chains go wrong. These are:
1. Offshoring, making it increasingly difficult for firms to monitor supply chains adequately
2. Increasing complexity of supply chains, meaning companies were often unaware of who their suppliers were subcontracting to
3. Cost pressures, which could lead to compromise on quality and ethics
4. Geographic clustering, making manufacturers vulnerable to a localised disaster such as the Japanese tsunami of 2011
5. Modern communications, which can quickly damage reputations
6. Just-in-time production methods, which have reduced the time to recover from supply chain failure
7. Dependence on multiple suppliers, increasing overall vulnerability.