Firms 'gambling with their existence' by having no supply chain risk mitigation strategies, says...

Will Green is news editor of Supply Management
18 November 2014

Nine out of 10 firms do not quantify risk when outsourcing production, according to a survey.

The poll also found just 25 per cent of a typical company’s end-to-end supply chain is being assessed in any way for risk, while nearly half of respondents had no backup plans for a factory or distribution centre shutdown.

In a report Managing Risk in the Global Supply Chain, Paul Dittmann, executive director of the Global Supply Chain Institute at the University of Tennessee, said: “We were surprised by some of the findings regarding the lack of mitigation strategies.

“Any business that does not have some basic form of risk mitigation plans in place is simply gambling with its existence.”

The report, commissioned by UPS Capital Corporation, found on average 38 per cent of suppliers were single sourced, though the range for single sourcing among respondents was 13 per cent to 63 per cent. The exception was transport carriers, which were single sourced by 14 per cent of firms.

Reasons for single sourcing included “one supplier has a significantly lower cost and/or higher quality”, “no other supplier can adequately satisfy the need” and “we’ve always done business this way”.

The report also showed on average 49 per cent of firms had suppliers who could continue supplying in the event of a disaster in one location, but 51 per cent of suppliers could not do so “within a reasonable time frame”.

The number one concern for respondents was quality problems, followed by the requirement for increased inventory due to longer supply chains, and natural disasters.

The most popular risk mitigation strategy was choosing strong suppliers, followed by compressing shipping and cycle times using lean principles, and using visibility tools.

The report, based on responses from 150 US supply chain executives, recommends firms identify risks, prioritise them and develop mitigation plans for the highest priority risks.




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