Executive Briefings

Risk Management Firm Warns of Stressed Supply Chain Management

Companies are finding it increasingly difficult to control their supply chains at a time when the cost of failure is higher than ever, according to risk management association Airmic.

Firms are outsourcing not just production but also their reputation to suppliers without understanding how they operate or having adequate risk management strategies in place.

Speaking at the publication of a new report on supply chain failure, Airmic technical director Paul Hopkin said: "The relentless pressure to cut prices has led to the creation of supply chains of mind-boggling complexity and business models that no one properly understands. When you consider the speed with which information travels, boards should not be surprised when public relations disasters such as the horse meat scandal take place."

The report, Supply Chain Failures: A study of the nature, causes and complexity of supply chain disruptions, found that businesses frequently have taken inadequate measures to protect their supply chains, that failures have become common and that many firms are ill-prepared to respond to them.

It identified seven underlying factors that tend to be present whenever supply chains go wrong: off-shoring, increasing complexity, cost pressures, geographic clustering, modern communication, modern production methods, and increasing dependency.

The need to acquire components from many different sources increases vulnerability to supply chain failure. Boeing's commercial arm, for example, handles more than 750 million aircraft parts a year from 1,200 companies operating 5,400 factories.

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Firms are outsourcing not just production but also their reputation to suppliers without understanding how they operate or having adequate risk management strategies in place.

Speaking at the publication of a new report on supply chain failure, Airmic technical director Paul Hopkin said: "The relentless pressure to cut prices has led to the creation of supply chains of mind-boggling complexity and business models that no one properly understands. When you consider the speed with which information travels, boards should not be surprised when public relations disasters such as the horse meat scandal take place."

The report, Supply Chain Failures: A study of the nature, causes and complexity of supply chain disruptions, found that businesses frequently have taken inadequate measures to protect their supply chains, that failures have become common and that many firms are ill-prepared to respond to them.

It identified seven underlying factors that tend to be present whenever supply chains go wrong: off-shoring, increasing complexity, cost pressures, geographic clustering, modern communication, modern production methods, and increasing dependency.

The need to acquire components from many different sources increases vulnerability to supply chain failure. Boeing's commercial arm, for example, handles more than 750 million aircraft parts a year from 1,200 companies operating 5,400 factories.

Read Full Article