Firms pay 'marginal attention' to supply chain risk

11 August 2013

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12 August 2013 | Ceri Allan

Almost two thirds of companies only pay “marginal attention” to supply chain risk reduction, according to a survey by MIT.

But 40 per cent of businesses are investing in more advanced risk mitigation processes, enabling improved performance both operationally and financially.

According to the study, conducted by the MIT Forum for Supply Chain and PwC, companies that pay little attention to risk reduction capabilities were categorised as ‘immature’. They mitigate risk by either increasing capacity or strategically positioning additional inventory.

David Simchi-Levi, founder of the MIT Forum, said: “Our survey indicates supply chain disruptions have a significant impact on company business and financial performance, and companies that invest in supply chain flexibility are more resilient to disruption than mature companies that don’t.”

Actions companies currently take to mitigate supply chain risk include creating and implementing a business continuity plan, increasing inventory levels and safety stock, and using both a regional and global strategy.

Participants were asked how they felt key supply chain complexity drivers have evolved over the past three years. Some 95 per cent stated dependencies by supply chain entities had increased. 94 per cent believed changes in extended supply chain networks occur more frequently. And 94 per cent stated new products had been introduced more frequently.

MIT developed five key principles companies can use to better manage risks to their supply chain:

1.    Supply chain disruptions significantly impact company business and financial performance.

2.    Mature supply chain companies (companies with advanced risk reduction capabilities) are more resilient to supply chain disruptions therefore impacted less and recover faster than those with immature capabilities.

3.    Mature companies investing in supply chain flexibility are more resilient to supply chain disruptions than mature companies that don’t.

4.    Mature companies that invest in supply chain flexibility are more resilient to disruptions than mature companies that do not invest in risk segmentation.

5.    Companies with mature capabilities in supply chain and risk management do better among all surveyed dimensions of operational and financial performance.

The report surveyed 209 companies with global operations.

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