Most Businesses Don't Have Risk Assessment, Mitigation Strategies in Place, Research Says
By: University of Tennessee July 22, 2014
Outside risks can stretch supply chains' capabilities to the breaking point, but executives who run them often fail to develop risk contingency plans, according to a new study from the Global Supply Chain Institute at the University of Tennessee, Knoxville.
Ninety percent of the firms surveyed do not measure supply chain risk when outsourcing production, and none uses outside expertise to help assess supply chain risks, according to the study.
The report, "Managing Risk in the Global Supply Chain," is the third installment in the "Game-Changing Trends in Supply Chain" series from UT's supply chain faculty. The study was sponsored by UPS Capital Corporation, a business unit of UPS that helps customers manage supply chain risk with financing and insurance solutions.
"The supply chain is the area of a company where executives must balance operational efficiencies with customer and company needs, all without actually having direct control over many of the moving parts," said Paul Dittmann, executive director of the Global Supply Chain Institute and the study's author. "The visibility of material movement and control of the supply chain becomes even murkier in the global environment, which puts firms’ global supply chains at greater risk."
The study encompasses a survey of more than 150 supply chain executives and interviews with executives from six companies. The companies surveyed ranged in size from $300m to more than $80bn and covered a cross-section of industries, including retailers, manufacturers and service providers.
Among other findings, the research determined that normal day-to-day challenges of doing business—unexpected delays, cybersecurity, supplier failures and warehouse shortages—often overwhelm executives, giving them little if any time to plan for major interruptions such as natural disasters or geopolitical disruptions. Managing day-to-day challenges becomes a barrier to the ability of supply chain professionals to prepare comprehensive plans for risk identification, prioritization and mitigation.
"A disruption or issue in any supply chain, large or small, can significantly impact a company's revenue stream, and in some cases even jeopardize the continuity of the business," said Dave Zamsky, vice president of UPS Capital. "The threats are very real, but there are many ways to mitigate this risk, such as insuring losses from a third-party logistics provider."
In the study, respondents highlighted tools they use to mitigate risks in their supply chains. The strategies included a reliance on a strong, competent supplier, followed by compressing cycle times and leveraging logistics visibility tools.