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Growing Challenge of Supply Chain Risk Must Be Addressed

Although supply chains are becoming highly sophisticated and are vital to a company’s competitiveness, risk is inherent in their global nature.

February 2013
According to a new survey of 600 executives from Deloitte — “The Ripple Effect: How Manufacturing and Retail Executives View the Growing Challenge of Supply Chain Risk” — global executives are increasingly concerned about the growing risks to their supply chains and costly negative impacts such as margin erosion and inability to keep up with demand. As they operate in this environment of escalating risk, an alarming 45 percent of surveyed executives say their supply chain risk management programs are only somewhat effective or not effective at all.

“Supply chains are increasingly complex, and their interlinked, global nature makes them vulnerable to a range of risks,” says Kelly Marchese, principal, Deloitte Consulting LLP, who specializes in manufacturing operations and supply chain strategy. “This increased complexity, coupled with a greater frequency of disruptive events such as geopolitical events and natural disasters, presents a precarious situation for companies without solid risk management programs in place.”

According to the Deloitte survey, supply chain disruptions are not only more frequent, they are also having a larger negative impact. Among the findings:

  • More than half (53 percent) of the executives say that supply chain disruptions have become more costly over the last three years.

  • Executives from the technology, industrial products, and diversified manufacturing sectors are most likely to report that supply chain disruptions have become more costly.

  • Nearly half (48 percent) of the surveyed executives say the frequency of risk events that had negative outcomes — such as sudden demand change or margin erosion — has increased over the last three years.

What’s Needed for An Effective Risk-Management Strategy?
Executives surveyed recognize the strategic importance of supply chain risk, with 71 percent responding that supply chain risk is an important factor in their strategic decision-making. Nearly two-thirds (64 percent) claim to have in place a risk management program specific to the supply chain. However, only 55 percent of surveyed executives think their risk management programs are extremely or very effective.

“Many companies have some form of a supply chain risk management program, but unfortunately they do not always get the results they need from these programs,” says Marchese. “To be effective, companies should take a holistic and integrated approach to managing supply chain risk and go beyond traditional approaches. Because of the complex nature of today’s supply chains, disruptions will inevitably occur. True resilience means building in the ability to recover efficiently and decrease the impact of those events.”

According to Deloitte, the four important attributes that are critical to supply chain resilience are:

  • 1. Visibility: The ability to monitor supply chain events and patterns as they happen, which enables companies to proactively — and even preemptively — address problems.

  • 2. Flexibility: Being able to adapt to problems efficiently, without significantly increasing operational costs, and make timely adjustments that limit the impact of disruptions.

  • 3. Collaboration: Having trust-based relationships that allow companies to work closely with supply chain partners to identify risk and avoid disruptions.

  • 4. Control: Having policies, monitoring capabilities, and control mechanisms that help confirm that procedures and processes are actually followed.

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