With limited tech investment, supply chain troubles occur for many below tier two
With limited tech investment, supply chain troubles occur for many below tier two

The index: stats show increasing risk below tier 1 suppliers

7 February 2020

BCI report finds rising incidents of disruption with suppliers below tier two

While businesses are getting better at managing their tier one suppliers and carrying out in-depth due diligence at this level, many are finding it “increasingly difficult to tackle tier two and tier three risks”, according to the global Supply Chain Resilience 2019 Report from the Business Continuity Institute (BCI), and its Ten Year Trend Analysis. Incidents with immediate suppliers fell below 50% for the first time since 2016, but those in tier two rose to 24.9% from 23.2% last year and those occurring in tier three rose to 12.2%, up from 11% in 2018. 

Rachael Elliott, BCI’s head of thought leadership and the report author, explains that given 40% of disruptions occur from tier two down to tier 10 and beyond, a more focused approach to managing these suppliers may be expected. Yet in fact the opposite appears to be the case, with almost 44% of respondents revealing that they ‘never’ seek to understand the business continuity arrangements of their key suppliers, and almost 40% of respondents never attempt to understand these continuity arrangements for tier four suppliers and beyond. 

“The crucial word is ‘key’ suppliers,” says Elliott. “It’s important to take a risk-based approach, assessing riskier key suppliers as a priority. Risk mapping, usually with technology, can help identify issues further down the supply chain.”

In 2019, the greatest source of supply chain disruption was unplanned IT and telecoms outages, accounting for 44.1% of disruptions, with adverse weather (35.1%), cyberattack and data breach (26.1%), loss of talent/skills (21.2%) and transport network disruption (15.8%) making up the top five. Transport network disruption, often from triggers such as adverse weather and terrorist attacks, has appeared in the top five consistently since 2013.  

Although the top five causes of supply chain disruption remain fairly static year to year, says Elliott, over the past five years newer disruptions such as cyberattack and data breaches and loss of talent/skills have made consistent appearances in the top five. Cyberattack and data breach has featured as one of the top three causes of disruption in the past five years as digitalisation within supply chains exacerbates the cyber security threat. 

Conversely, some disruptions make fleeting appearances due to macroeconomic or environmental issues. Insolvency in the supply chain, for example, reached its peak in 2009 as the fourth greatest disruption during the global financial crisis, but has never re-entered the top five since. 

Mismatched concern

However, Elliott highlights a disconnect between these actual disruptions and what procurement professionals are worrying about. The greatest source of concern, according to 61.7% of respondents, is cyberattack and data breach, although this only accounted for 26.1% of disruptions in 2019. “Over the next year I’m expecting that political and socio-economic issues, civil unrest, possibly due to climate change, could have more of an effect on supply chains and it will be interesting to see if those translate as higher financial losses for organisations,” she says.

Over the past 10 years the top three consequences of supply chain disruption were loss of productivity (57.8%), increased cost of working (41.6%) and impaired service outcome (35.9%). Organisations may suffer multiple impacts from a single incident of disruption, adds Elliott, and an impaired service outcome might lead to increased customer complaints, resulting in damage to brand reputation, for example.

The report suggests businesses build a framework of potential disruption causes to focus on and put measures in place. Yet it’s no easy task, says Elliott, given many face lack of support, or even resistance, in top level management commitment to managing supply chain risk.

73% of CPOs still rely on Excel

Excel is used by 73% of respondents to predict, record and report on supply chain disruption. That’s one statistic revealed by the report that may be surprising given the global appetite for visibility and traceability. Only a fifth of respondents are using supply chain mapping technology within their organisations, and the implementation of new technologies for supply chain management in general is slow, and while uptake of technologies such as big data analytics, Internet of Things and AI is on the increase, half of respondents remained resistant. Social media and news tracking has risen to become one of the top five technologies.

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