17 February 2010 | Jake Kanter
Recovery in the manufacturing industry could open up organisations to new supply chain risks.
According to risk consultancy Marsh an upturn in demand will ratchet up competition for suppliers, prices may increase and quality could be compromised in the “stampede” to ship goods.
The warning comes after January’s Report on Business from the Institute for Supply Management showed manufacturing activity increased to 58.4 per cent, from 54.9 per cent in December. Meanwhile, activity in the UK manufacturing industry also increased, rising to a 15-year high last month.
“New orders are accompanied by new risks,” said William Bruce, a senior vice-president in Marsh’s risk consulting practice.
He advised manufacturing firms to seek assurances that vendors can manage an upturn in demand and assess the capacity and capability of new suppliers to ensure continuity of supply. Manufacturers should also identify back-up vendors and ensure that insurance policies cover supply chain disruption, he said.
A study by research business Mactavish last month found manufacturing firms were among the worst exposed to risk. Outsourcing and supplier failures have risen sharply in this sector. As a result, firms have been forced to source from a single supplier and have suffered reduced stock levels.