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Why Business executives need to pay more attention to Supply Chain risks

By Dave Lloyd on February 12, 2014 in General, Resilience
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Business executives are not evolving to keep ahead of the complex and increasing risks across their global supply chains, a Zurich survey finds.

In its fifth annual Supply Chain Resilience Survey released this month, Zurich polled 519 members of the Business Continuity Institute—including risk and supply-chain managers, and business continuity, security and emergency-planning professionals—about their response to the challenge of running smooth global business operations.

Anya Khalamayzer wrote in www.propertycasualty360.com that the survey finds that three-quarters of business specialists do not have a clear understanding of their organization’s supply-chain disruption experiences, and only a quarter are coordinating and reporting across their enterprise to gain it. Moreover, 50% say half or more of their suppliers do not have a business-continuity plan in place.

This level of unpreparedness has remained unchanged from 2012.

“Results in 2013 continue to indicate a passive approach to reviewing the likely effectiveness of supplier business-continuity arrangements,” states the report, which goes on to say that supply-chain resilience is a complicated issue that is “not just about continuity.”

While supply-chain disruptions are increasing—over the past four years, 75% of respondents annually experienced at least one incident—they are also occurring further inside the supply chain. Forty-two percent of business interruptions originated below the tier-one supplier (supplying parts to the manufacturer of the final product) in 2013.

The top-three causes of disruption occurred from unplanned IT or telecommunications outages, followed by adverse weather (40%) and service failure by outsourced providers (37%).

However, non-physical causes of interruption (that don’t deter the immediate supply of a product or service but require crisis response to stakeholders or longer-term damage) made an impactful appearance: high-profile media reporting of the danger of cyber attacks rose from 18th place in 2012 to 5th place in 2013, and the non-availability of loss of talent increased from 10th place to 6th.

Forty-one percent of respondents stated that customer complaints received after a disruption increased since 2012, placing it second behind loss of productivity as the primary consequence of supply-chain disruption. Twenty-four percent experienced reputational damage to their brand, but only 3% said it caused a fall in share price.

“Different parts of the organization need the supply chain to deliver different and potentially conflicting outcomes,” says Zurich.

The report recommends several steps to reconcile enterprise-wide gaps in supply chain planning:

  • Asking suppliers whether they have activated their BC plans with previous clients, and report their results.
  • Asking suppliers how they identify their own ‘critical suppliers’ and what due diligence they undertake with them.
  • Ensuring the vendor has a BC program and plan, the business has recovery capability built into their BCPs for reduced services in the event of a supplier being impacted, as well as contingency plans owned and developed by the business to cover total loss of a material supplier.
  • Understanding the risk appetite of the directors of the supplier, which can be a guide as to whether the organization takes resilience seriously and their responsibility to their customers’ continuity.
  • Categorizing disruptive and financially significant suppliers and conducting annual due diligence and regular meetings with these parties.

 

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