Poor supplier relationships impact badly on Australian businesses

CIPS 22 June 2015

1 in 5 Australian businesses have lost out financially because of poor supply chain management, reveals CIPS

1 in 5 Australian businesses have lost out financially because of poor supply chain management, reveals CIPS

  • As elements of Australian supply chains are increasingly being outsourced to developing markets in Asia, 70% of businesses cannot guarantee their supply chains are free from malpractice
  • Only 8% of businesses have close relationships with suppliers at all stages of their supply chains 
  • Despite supply chains getting longer, over half of supply chain professionals admit to having zero visibility of their suppliers beyond the second tier
    • Research described as a “wake up call” for Australian businesses who are endangering both consumers and the economy

Only a small minority of Australian businesses can fully account for where their products and services have come from and go to, according to the Chartered Institute of Procurement & Supply (CIPS).

A new survey of 645 supply chain managers world-wide shows that 57% of companies in Australia admit to having zero visibility beyond the second tier of their supply chain, with only a quarter of businesses having visibility of their entire supply chain.

The findings come at a time when supply chains are becoming longer and more complex. Four out of five (79%) Australian businesses surveyed currently outsource from emerging markets in Asia. However, less than one in ten of Australian procurement managers have a close relationship with suppliers beyond tier two of their business’ supply chain.

According to David Noble, Group CEO of the Chartered Institute of Procurement & Supply (CIPS), emerging risks associated with poor practices and standards in these markets are hard to manage:

“By increasingly turning to emerging Asian suppliers to maintain their price competitiveness, businesses are also becoming more exposed to risk. Having visibility and good supplier relationships at the first tier of the supply chain is clearly no longer enough, as these risks do not always exist in the first tier, but often further down supply chains.”   

One in five supply chain managers in Australia admit to having lost out financially in the past 12 months as a result of poor supplier relationships. With consumers increasingly willing to punish brands with a bad reputation by going elsewhere, the risks for business of being associated with malpractice in their supply chains can easily outweigh any savings from lower labour and operating costs.

The opaque nature of Australia’s supply chains means that businesses are increasingly and dangerously exposed. This research shows that 70% of businesses are unable to guarantee there is no malpractice (such as child labour, slavery, fraud or corruption) in their supply chains.

“Supply chain issues such as poor health and safety standards for workers, labour abuse, and environmental degradation are endangering both consumers and the economy. Despite that, there has been so little action in this area from Australian businesses”, said Noble.

Should a supply chain crisis occur, over half (54%) of Australian businesses admit they do not have a risk mitigation strategy in place all the way down their supply chain. When coupled with data which shows that only two in five (43%) would take responsibility upon themselves for any disruption, then there are clearly concerns about where responsibility and accountability begins and ends.

The survey also reveals detail of the unseen disasters that are averted by Australian businesses on a regular basis. With half of supply chain managers admitting that a major crisis has been avoided in the past 12 months, the figures highlight the scale of the challenge facing Australian companies.

“Only by investing in a better understanding of the principles of good supply chain management and also forging closer relationships with suppliers across the entire network can Australian businesses ensure their supply chains are safer and more sustainable. Employing trained and skilled professionals with a licence to practise will go a long way towards realising this potential”, said Noble. 


Notes to Editors:

About the Chartered Institute of Procurement & Supply:

The Chartered Institute of Procurement & Supply (CIPS) is the leading international body representing purchasing and supply management professionals.  It is the worldwide centre of excellence on procurement and supply management issues.  CIPS has a global community of 115,000 in 150 different countries, including senior business people, high-ranking civil servants and leading academics.  The activities of procurement and supply chain professionals have a major impact on the profitability and efficiency of all types of organisation and CIPS offers corporate solutions packages to improve business profitability.

About the survey:

The CIPS Supply Chain research is based on an international survey of 645 procurement and supply chain executives worldwide. The sample includes 82 supply chain managers in South Africa, 460 in the UK and 63 in Australia. All respondents are CIPS members at manager level or above and the survey was conducted between 18th and 29th May 2015.


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