Research puts paid to idea that supply interruptions are increasing

31 March 2010

31 March 2010 | Paul Snell

The fear that supply chain disruptions have increased in the past decade is perception not reality, preliminary research by Manchester Business School has concluded.

The common impression that interruptions to supply chain activities are now more frequent or last longer is not borne out by these initial findings.

“The data doesn’t support an increase in the duration or financial impact of disruptions between 2000 and 2009,” said Brian Squire, lecturer in operation and supply chain management, who carried out the study. “We have a fairly steady, sedate trend between those years.”

The analysis of supply chain turmoil between 2000 and 2009, which looked at publicly announced breakdowns, uncovered 2,405 disruptions across 35 industries worldwide.

Squire proposed two theories as to why perception of growing supply chain risk differs from reality. It could be because recent events are easier to recall, therefore skewing perception toward contemporary catastrophes. And it could also be true supply chain disruptions have become longer and more frequent, but the increasing maturity of supply chain risk management has offset their effects and mitigated their impact.

The research, presented at an Expert Series event hosted by Dow Jones in London yesterday, also revealed that 88 per cent of supply chain interruptions were the consequence of human action. A proportion of these – 40 per cent – were intentional, such as strikes, thefts or cyber attacks.

Accidents, production problems and labour unavailability accounted for most disruptions. But the probability and frequency of these changed depending on location. Sabotage, terrorism and war accounted for a far higher proportion of disruptions in Africa than in other regions.

All disruptions were found to have a financial impact, and in 19 per cent of cases the cost was calculated to be more than $500 million (£330 million). In more than 50 per cent of cases the interruption also had a local economic impact.

Squire suggested firms create their own databases looking at disruptions, durations and impact. Building up a sufficient number of cases would help buyers understand the probability of events and assist planning to mitigate them.

Speaking at the same event, Nick Wildgoose, global supply chain product manager at insurer Zurich, agreed: “One of the fundamental things in managing risk is having the right information, as much as you can, around your key suppliers. Risk should feature in your whole market appraisal, and part of understanding that is to get the information.”

* Manchester Business School is conducting future studies on supply chain risk and resilience. Contact Brian Squire if you would like to take part.

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