Executive Briefings

More Complex Supply Chains Lead to Disruptions and Financial Losses, Aberdeen Reports

For more than half of the companies responding to a new study by Aberdeen Group, costly supply chain disruptions aren't just something to fear. They're a reality. Of the 138 companies included in the survey, 58 percent reported financial losses resulting from disruptions over the past year. And 99 percent said they experienced some kind of glitch. The situation is a reflection of increasingly complex supply chains, as companies seek out less expensive overseas suppliers, manufacturers and markets. In the process, they are forced to take a closer look at accompanying risks. And the sources of trouble are many. They include supplier capacity failing to meet demand (56 percent of the companies reporting supply chain disruptions), shortages or price increases for raw materials (49 percent), unexpected changes in customer demand (45 percent) and shipments that were delayed, damaged or misdirected (39 percent).

Still, not everyone was equally affected by those problems. Dividing companies into the traditional categories of best-in-class, average and laggards, Aberdeen found that the top performers were twice as likely than those at the bottom to weather a supply chain disruption with no financial loss, market-share erosion or brand damage. Metrics for identifying "best-in-class" in the area of risk management included percentage of shipments from suppliers received complete and on time, percentage delivered to customers in the same manner, change in the frequency of stockouts over the past 18 months, and change in variable distribution costs during that same period. According to Aberdeen, best-in-class companies are more likely to manage or assess a number of key risks, including infrastructure congestion, supplier and country risk profiles, fuel price hikes and non-environmental catastrophes. The ability of a company to combat risk also determines what kind of advice it receives from Aberdeen. For laggards, the firm urges them to begin thinking about supply chain risks, evaluate their supply chain infrastructure from the standpoint of visibility and information exchange, and educate staff about the danger of disruptions. For companies deemed "average," Aberdeen advises the adoption of proactive visibility measures, management of additional supply chain risk, rating of suppliers on at least a monthly basis, and better collaboration with supply chain partners. Recommended "steps to success" for companies that are already best in class include continued expansion of actively managed risks; use of advanced data analysis, risk decision matrices and statistical modeling as part of a more data-driven approach; and consideration of ways to hedge against the impact of non-controllable risks, such as currency shifts and terrorist attacks.

Visit www.aberdeen.com

For more than half of the companies responding to a new study by Aberdeen Group, costly supply chain disruptions aren't just something to fear. They're a reality. Of the 138 companies included in the survey, 58 percent reported financial losses resulting from disruptions over the past year. And 99 percent said they experienced some kind of glitch. The situation is a reflection of increasingly complex supply chains, as companies seek out less expensive overseas suppliers, manufacturers and markets. In the process, they are forced to take a closer look at accompanying risks. And the sources of trouble are many. They include supplier capacity failing to meet demand (56 percent of the companies reporting supply chain disruptions), shortages or price increases for raw materials (49 percent), unexpected changes in customer demand (45 percent) and shipments that were delayed, damaged or misdirected (39 percent).

Still, not everyone was equally affected by those problems. Dividing companies into the traditional categories of best-in-class, average and laggards, Aberdeen found that the top performers were twice as likely than those at the bottom to weather a supply chain disruption with no financial loss, market-share erosion or brand damage. Metrics for identifying "best-in-class" in the area of risk management included percentage of shipments from suppliers received complete and on time, percentage delivered to customers in the same manner, change in the frequency of stockouts over the past 18 months, and change in variable distribution costs during that same period. According to Aberdeen, best-in-class companies are more likely to manage or assess a number of key risks, including infrastructure congestion, supplier and country risk profiles, fuel price hikes and non-environmental catastrophes. The ability of a company to combat risk also determines what kind of advice it receives from Aberdeen. For laggards, the firm urges them to begin thinking about supply chain risks, evaluate their supply chain infrastructure from the standpoint of visibility and information exchange, and educate staff about the danger of disruptions. For companies deemed "average," Aberdeen advises the adoption of proactive visibility measures, management of additional supply chain risk, rating of suppliers on at least a monthly basis, and better collaboration with supply chain partners. Recommended "steps to success" for companies that are already best in class include continued expansion of actively managed risks; use of advanced data analysis, risk decision matrices and statistical modeling as part of a more data-driven approach; and consideration of ways to hedge against the impact of non-controllable risks, such as currency shifts and terrorist attacks.

Visit www.aberdeen.com