Supply chain threats increasing but risk management is not

13 February 2013

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13 February 2013 | Helen Gilbert

Firms are facing a growing number of threats to their supply chains but many do not have sufficient management programmes in place to deal with risk, research has revealed.

Of 600 global retail and manufacturing executives surveyed by Deloitte, more than half (53 per cent) claimed that supply chain disruptions had become more costly over the past three years. Almost half (48 per cent) said the frequency of risk events that had negative outcomes – such as sudden demand change or margin erosion – had increased over the same period.

However, despite more than two-thirds (71 per cent) identifying supply chain risk as an important factor in their decision making, only 55 per cent believed their risk management programmes to be effective.

A lack of cross-functional collaboration (32 per cent) and the cost of implementing risk management strategies (26 per cent) were cited as the top two challenges, while organisational factors also made effective supply chain risk more difficult, the study found.

“Supply chains are increasingly complex and their interlinked, global nature makes them vulnerable to a range of risks,” said Kelly Marchese, principal at Deloitte Consulting LLP.

“This increased complexity, coupled with a greater frequency of disruptive events such as geopolitical events and natural disasters, presents a precarious situation for companies without solid risk management programmes in place.”

Three-quarters of executives described their supply chain model as being organised around silos – which can result in a lack of supply chain visibility and collaboration, the report said.

Only 36 per cent of professionals used predictive modelling tools to manage risk, while 29 per cent used risk-sensing data, worst-case scenario modelling or business simulation approaches.

Executives from the technology, industrial products and diversified manufacturing sectors were most likely to report that supply chain disruptions had become more costly.

“Because of the complex nature of today’s supply chains, disruptions will inevitably occur,” Marchese added. “True resilience means building in the ability to recover efficiently and decrease the impact of those events.”

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