Beware of risk at lower tier suppliers

4 November 2011

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4 November 2011 | Adam Leach

More than a third of supply chain disruptions are the result of problems with indirect suppliers, research has found.

A global survey, conducted by the Business Continuity Institute (BCI) and published this week, found 85 per cent of companies suffered at least one disruption in their supply chain. The report, which quizzed 559 companies from 62 countries, indicated a growing need for procurement departments to increase focus on sub-contractors to main suppliers with 40 per cent of all disruptions resulting from issues below immediate vendors.

CIPS CEO David Noble said: “Disruptions to supply chains are becoming virtually commonplace and as the report shows, a high proportion of disruptions happen further down the supply chain in places many companies don’t look, such as second or third tier suppliers.”

He added that as a result of a lack of focus further down the supply chain “it often comes as a surprise when trouble hits”.

Nick Wildgoose, global supply chain product manager at Zurich Insurance, who appeared at the CPO Agenda debate on risk management, said the finding “reinforced” the need to improve risk management throughout the entire supply chain.

The survey also found supply chain problems had far-reaching consequences. A total of 19 per cent of respondents reported that disruptions had resulted in concern from shareholders. Reputational damage (17 per cent) and an increase in regulatory scrutiny (11 per cent) were also cited as longer-term consequences.

Lyndon Bird, technical director at the BCI, said: “It is more critical than ever to strike a sensible balance between the need to drive down costs and the need for these cost savings not to be wiped out through disruption or unacceptable risk exposure.”

Adverse weather conditions were the most common cause of disruption with 51 per cent naming it and 41 per cent reporting IT and telecom outages as a cause. Cyber attacks became the third most common issue for the first time in the three years the report has been carried out.

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