Survey Shows High Costs of Neglecting Supply Chain Risk Management

by: Loraine Lawson

By now, most companies are well aware of how costly supply chain disruptions due to disasters can be. But a recent UK report should put CEOs, CIOs and other executives on notice about two even more alarming findings:

1. The majority of supplier disruptions aren’t related to natural disasters.
2. Most supply chain managers realize the costs of these problems, but they don’t seem to be taken supply chain risk management seriously. Fifty-five percent of businesses haven’t reviewed relationships with suppliers in the past six months because “it’s too expensive” or “they’re too busy.”

Zurich, a UK insurance company, released the report, “The Weakest Link: UK PLC’s Supply Chain,” earlier this month. It’s based on research from May by the independent B2B research consultancy, Vanson Bourne.

The research looked at mid-corporate UK businesses and found they’d lost an average of £200,000 ($311,320 or 198,5972 yuan) over the past 12 months to supply chain disruptions. Manufacturers losing even more, at an average of £228,000 ($435,848 or 278,0361 yuan).

Typically, when the B2B (business-to-business) sector talks about supply chain disruption, the focus tends to be on natural disasters. But the report reveals that doesn’t account for even a majority of the disruptions.

While the report notes that recent disasters in Japan and Thailand, and even a harsh UK winter, these natural events don’t account for the majority of disruptions.

Although “adverse weather” is the second most common cause of disruption, it accounts for only 45 percent of the supply chain problems. Other major disruptions in the supply chain include:

• Product quality incidents (57 percent)
• Unplanned IT outages (29 percent) [Link to “Broken down B2B post on B2B.com]
• Systems failures
• Supplier insolvency
• Natural catastrophe
• Political unrest or uncertainty

It’s worth noting, too, that those factors differ by industry. For instance, in the technology sector, unplanned IT outages created the majority of problems at 52 percent of the disruptions, whereas in wholesale, the leading source of disruptions was quality product incidents at 62 percent. IT outages accounted for only 37 percent of disruptions.

The good news is that companies are waking up to the full costs of supply chain problems and the need for better supply chain risk management: 68 percent say they’ll take a greater interest in reviewing supply chain risks over the next 12 months.