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31 July 2012 | Kamalpreet Badasha
Senior public sector leaders are unprepared for supply chain failures, according to research by insurer Zurich Municipal.
Risk and Response: The emerging dynamics of major incidents in public services and civil society rated supply chain risk as the third type of major incident threatening the public sector, behind severe weather and a financial crisis. But just 6 per cent of public sector leaders surveyed regarded supply chain failure as likely to happen to their organisation. This confidence is misplaced, as the report emphasized research from the Business Continuity Institute that revealed 85 per cent of organisations recorded at least one supply chain disruption in 2011.
An similarly low number of respondents, 4 per cent, expected outsourcing to cause any problems. This is despite the fact that 54 per cent of CFOs believed public sector outsourcing would increase.
“Outsourcing has been around for a long time, but public services are now operating with other organisations where both have tighter budgets and fewer people. They have to work out what the inherent risk is and from where it might flow,” said Neil Hardie, major incident manager at Zurich Municipal.
The study found some public sector leaders required suppliers and partners to complete risk profiles, but this approach was seen in only a few organisations. It also found the focus was on implementing contingency plans and completing due diligence at the beginning of a relationship.
The report stated as public sector organisations will be commissioning an increasing number of services to reduce operating costs, this will result in new supply chain problems. Some sectors will be inexperienced in supply management which may result in supply chain partners who are not financially viable or unsuitable being used. It goes on to state as organisations share suppliers, a problem or failure will affect a larger number of public sector clients.
“Whilst the current budgetary environment is driving increased outsourcing, most public sector leaders do not see supply chain risks as increasing the likelihood of a major incident. However, many are not thinking strategically about managing risk within their supply chain and across partners. We believe their apparent confidence in resilience to supply chain risks is misplaced,” said Anne Tory, managing director at Zurich Municipal.