Supply chain risk management and the cost of doing nothing

  • Written by Peter Needle
  • Published on 2 April 2015
  • Blogs

Your company’s board of directors may well ask, “What’s the point of supply chain consulting?” It’s not an uncommon question. However, neglecting supply chain risk management can have enormous financial, practical and competitive consequences, as our infographic illustrates.

Supply chains across various industries are rapidly growing more complex, thanks to global sourcing and production, sales in new markets and increased manufacturing segmentation. As a result, supply chain management is increasingly difficult, and disruptions are becoming less a question of ‘if’ and more a matter of ‘when’.

No black swans in supply chain risk management

A report by global technology distributor Avnet examined trends set to influence the global supply chain in 2014, and risk management represented a key factor. Supply chain management is rapidly becoming more complex, opening the door to multiple risks which require attention. From ‘acts of God’ to political conflict and ethical standards, companies must analyse all operations and identify potential problems before they happen.

Supply chain research by Zurich quoted one executive as stating, “There are no black swans. All risks are identifiable.” Supply chain management, risk assessments and crisis strategies are vital for any company to consistently meet the expectations of business stakeholders throughout any economic or environmental challenges.

This analysis must be a constant and ongoing process , since supply chains do not remain static.  “If you don’t constantly monitor your supply chain, your exposures may change significantly in short order - you will have new customers, new suppliers and your suppliers may have changed their suppliers,” says Frank S. Murray Jr., senior counsel at law firm Foley & Lardner. 

The real cost of doing nothing

Despite an awareness of supply chain threats growing steadily, only a minority of companies have a well-developed supply chain risk management strategy. Margins for error in the supply chain are getting smaller, and companies who fail to consider potential risks could suffer disaster as a result (as our infographic demonstrates).

Research by Zurich analysed 2500 supply chain disruptions and found that around 20% had financial consequences in excess of $500 million (£300 million). The impact of a disaster can be incredibly far-reaching, leading to decreased sales, brand damage and extra expenses to aid recovery. Historically, supply chain disruptions lead to a 9% drop in sales and a 11% increase in costs on average, and businesses that suffer from extended interruptions often never recover.

Another survey conducted by the Business Continuity Institute and the Chartered Institute of Purchasing and Supply questioned 519 companies from 71 countries, and found that 75% had experienced at least one supply chain disruption during the past year. 15% admitted to experiencing an annual loss in excess of €1 million (£823,000) as a result .

Supply chain risk management is key to financial stability

So, it’s clear that the cost of ignoring supply chain management is extremely high. BCI technical director Lyndon Bird argues that a supply chain “is only as strong as its weakest link”, and this is why risk strategies need to inspect every single link.

We know it can seem like a tough task, but until companies give supply chain management the full recognition it deserves, disasters will continue to hit businesses hard. 

In fact, supply chain consulting doesn’t have to be difficult – automated systems can do most of the work for you, leaving you free to run your business secure in the knowledge that supply chain risks are minimised. Contact us to find out more.

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