Up to 50% of disruption comes from suppliers beyond tier one so procurement teams must develop a comprehensive map of risk which answers six key questions, a report has found.
The impacts of deglobalisation, fluctuating port capacity, labour shortages and increased cybersecurity risk made it more important than ever to implement a risk management framework, the report by insurance provider Chubb found.
Nick Wildgoose, CEO of Supplien Consulting and board member of the Supply Chain Risk Leadership Council, who contributed to the report, said 40-50% of supply chain failures take place not because of problems with first-tier suppliers, who are commonly monitored, but when suppliers lower down the chain cause mishaps.
The price of a single sea freight container has jumped from around $1,400 to as high as $12,000. Ship re-routing is adding up to 1.5 days onto journeys, and the time it takes to get a new car has lengthened from three months to a year in some cases, the report said.
Peter Kelderman, marine risk management leader for Chubb Europe and co-author of the report, said: “The past few years have taught us that robust risk management and business resilience strategies are critical to future-proofing supply chains. You are always working on it – making a permanent change until the next change.”
He added companies should conducting constant inspections and audits, as well as “wargaming” the impact of losing a supplier, and testing alternative scenarios.
The report recommended procurement teams regularly ask themselves these six questions:
1. Have you established appropriate capabilities to assess supply chain exposures (either through internal resources or engaging a professional specialist)?
2. Does your business resilience strategy include review of your supply chain beyond tier one suppliers?
3. Has an analysis been conducted to identify supply chain risk accumulations? This may include cyber incidents, transportation restrictions, public health, regulatory or political risks.
4. Has your organisation implemented a business continuity management system to a recognised standard (e.g., ISO 22301 or BCI good practice guidelines)?
5. Have you created a suitable budget to support business resilience measures (such as inventory stockpiling, alternative suppliers, utility back-up capability, business continuity plan development and maintenance)?
6. Are you confident the effectiveness of your supply chain resilience strategy can be demonstrated (e.g. via desktop or real-life exercises, real-time inventory management data, monitoring service level agreements for effectiveness or proven back-up systems)?
Wildgoose added: “No matter a company’s size, you might rely on something as small as a specialist screw or fastener to get your product out. That element might be made by a small company, in France, Asia or anywhere. What will you do if the supplier fails? If you only remember one question to ask yourself, make it that one.”
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