SCM World research among more than 750 supply chain professionals shows that concerns about safety and quality incidents top the risk league table for 2014. Overall, 37 percent are “very concerned” about the prospect of these, rising to 57 percent in the food and beverages sector. And although worries about other major risks such as supply shortages of critical components, natural disasters and other incidents affecting supplier facilities are down compared to 2012 figures, a majority of practitioners remain at least “somewhat” concerned about all of these.
At the same time, our data shows that many companies have only limited visibility of potential risks in their supply networks. Just 13 percent believe they have good information to at least their third tier of suppliers, while 41 percent are limited to those at tier 1. High-tech and apparel firms – long sufferers of negative media stories about sweatshop labour and ethical sourcing – have the greatest visibility, while those in energy and aerospace have the least.
At what level do you have good visibility of potential risks within your supply base?
Scratching below the surface
The most popular method of getting better visibility (used by 63 percent of our sample) is to ask tier 1 suppliers for information about their own sources of supply. This sounds straightforward enough, but as firms like Boeing have discovered during the course of pilot projects, such data can be highly sensitive, and obtaining it requires trusting relationships rather than simply contractual diktats.
Half of companies also use sub-tier supplier audits to identify risks (indeed, supplier audits are rated as the second-most effective risk mitigation tool after dual or multi-sourcing). Again, from a sector perspective, high-tech and apparel firms are among the biggest users of audits across different tiers.
Two other interesting findings from the research
Social media is a growing tool. Just 15 percent of practitioners say they are analysing social data from Twitter, Facebook, blogs and other digital platforms to get insights into sub-tier supplier risk today. And although only 17 percent are using it to provide advance warnings of potential supply disruptions, 39 percent expect it to be of value in the future. Auto makers like BMW are among the pioneers in tapping social media’s potential.
Sub-tier visibility enhances supply chain’s status. Among those that claim to have visibility of risks at tier 3 or beyond, 72 percent also believe that supply chain is regarded by their CEOs and top management as an equal value contributor to sales and marketing or R&D, compared with 43 percent of those whose view is limited to tier 1 suppliers only.
Although identifying and assessing risk further upstream in a supply network adds complexity, cost and workload, leading companies increasingly regard it as an essential component of their enterprise risk management initiatives. Success in this challenging area can enhanced by collaborating with key tier 1 suppliers to pool information and share resources, as well as by creating mechanisms to gather and distribute intelligence across the organisation, and participating in industry-wide initiatives where they exist.