Companies' brand reputation and earnings consistency increasingly rely on how well risks are managed in their supply chains. Media headlines are filled with accounts of supply chain risks: food and toy safety, product quality recalls, natural hazard disruptions, supplier delays, logistics unpredictability, supply chain security, and so on.

Risk managers overwhelmingly feel a rising tide of supply chain related risk (Figure 1). Nearly three-quarters of risk managers report that their company's risk level has increased since 2005, while just 2% say it declined. Moreover, 71% report that the financial impact of supply chain disruptions has also grown. In addition, the C-level at companies-the CEO, CFO, and COO-are increasingly recognizing the dangers of supply chain risks.

Figure 1: Supply Chain Risk and Financial Impact Have Increased Since 2005

 

These results are based on a survey of 110 risk management professionals conducted in January and February 2008 by Marsh's Supply Chain Risk Management Practice. The study results are remarkably consistent across industry and company size; this suggests there are common supply chain risk pain points and best practices across the risk management profession.

Study participants are concerned not only about the impact of supply chain risks, but also about their current ability to assess and manage them:

• "The supply chain poses serious risks that are not being adequately addressed."
                                                                  - Risk manager, large retailer
  
• "Pricing risks, on-time delivery issues, and the impact of reliability on customer and stakeholder satisfaction have had a major impact on our company's survival." 
                                                                   -Participant, midsize utility
  
• "Take this area of risk seriously. The global environment is more dynamic than ever before." 
                                                   - Risk manager, large global manufacturer

Supply Chain Risk Management: Miles to Go Before We Sleep

Policy makers, shareholders, boards of directors, and senior executives now demand better answers and accountability for supply chain risks. According to study results, although companies are concerned about these issues, most are just beginning to contemplate the processes and policies to manage these challenges effectively.

Despite rising awareness and concern about supply chain vulnerabilities, most organizations do not believe they are adequately assessing and addressing these risks. As Figure 2 shows, not a single study participant said their current supply chain risk practices are highly effective. Moreover, only 35% of organizations self-reported that supply chain risk management was moderately effective at their companies.

Figure 2: Supply Chain Risk Management Is an Emerging Discipline



Click here to download a complementary copy of the full Marsh report, "Stemming the Rising Tide of Supply Chain Risks."

http://global.marsh.com/news/articles/supply_chain_study.php

Beth Enslow is a senior vice president in Marsh's Supply Chain Risk Management Practice. She has more than 20 years experience advising companies on physical and financial supply chain optimization and related risks. Her past positions include running the supply chain and logistics research practices at Aberdeen Group and Gartner Inc.