Executive Briefings

SC Security & Risk Management: Are We Living In A Less Risky World?

Analyst Insight: Despite the fact executives downgraded risk levels in our recent risk survey, the impact of current economic conditions is long lasting. Global supply chains will continue to face major risks in 2010 and beyond. As such, designing a supply chain risk management strategy is still critical.

AMR Research recently surveyed 115 respondents in global companies in discrete manufacturing, process manufacturing, and retail about supply chain risks and mitigation strategies. Here's the breaking news: It appears supply chain executives are taking a collective sigh of relief as risk levels plunge quarter over quarter. In fact, comparing the growth of risks over the past year, we find only five have seen positive growth, while 10 have seen negative growth. The largest rate of decrease is 6.2 percent, with 1.6 percent the largest increase.

Are we living in a less risky world? Probably not. The fundamentals of supply chain management still haven't improved. This change in perception is likely a sign of our expectations that the economy has finally bottomed out. We're still faced with major risks, but things aren't as bad as they were last year.

Supply chain security breaches top the list of risks that have seen the biggest growth from last year, indicating a growing problem for global supply chains.

With respect to mitigation strategies, collaboration with trading partners tops the list for the fourth quarter in a row. Following collaboration is multisourcing strategies, performance-based contracts, and increase in IT investment. Interestingly, performance-based contracts have seen the biggest decline this year, indicating that performance hasn't been the primary culprit, but instead the macro conditions that impact suppliers and customers.

Nearshoring is the highest-growth mitigation strategy this past year. When we asked the respondents the reasons for nearshoring, 38 percent said an increase in cost competitiveness lies behind the shift.

The Outlook

With some signs of recovery, companies are unsure of what risks lie ahead. Some believe that the economy will quickly bounce back, resulting in unmet demand by limited inventory. However, a majority of the respondents believe that soft demand due to a continued recession presents the biggest risk in 2010. The second-highest risk in 2010 is the threat of more government regulation impeding their ability to operate profitably. Interestingly, it doesn't appear companies believe environmental regulations will be a primary risk in 2010. They are most likely thinking it'll take longer for these initiatives to become regulations.

AMR Research recently surveyed 115 respondents in global companies in discrete manufacturing, process manufacturing, and retail about supply chain risks and mitigation strategies. Here's the breaking news: It appears supply chain executives are taking a collective sigh of relief as risk levels plunge quarter over quarter. In fact, comparing the growth of risks over the past year, we find only five have seen positive growth, while 10 have seen negative growth. The largest rate of decrease is 6.2 percent, with 1.6 percent the largest increase.

Are we living in a less risky world? Probably not. The fundamentals of supply chain management still haven't improved. This change in perception is likely a sign of our expectations that the economy has finally bottomed out. We're still faced with major risks, but things aren't as bad as they were last year.

Supply chain security breaches top the list of risks that have seen the biggest growth from last year, indicating a growing problem for global supply chains.

With respect to mitigation strategies, collaboration with trading partners tops the list for the fourth quarter in a row. Following collaboration is multisourcing strategies, performance-based contracts, and increase in IT investment. Interestingly, performance-based contracts have seen the biggest decline this year, indicating that performance hasn't been the primary culprit, but instead the macro conditions that impact suppliers and customers.

Nearshoring is the highest-growth mitigation strategy this past year. When we asked the respondents the reasons for nearshoring, 38 percent said an increase in cost competitiveness lies behind the shift.

The Outlook

With some signs of recovery, companies are unsure of what risks lie ahead. Some believe that the economy will quickly bounce back, resulting in unmet demand by limited inventory. However, a majority of the respondents believe that soft demand due to a continued recession presents the biggest risk in 2010. The second-highest risk in 2010 is the threat of more government regulation impeding their ability to operate profitably. Interestingly, it doesn't appear companies believe environmental regulations will be a primary risk in 2010. They are most likely thinking it'll take longer for these initiatives to become regulations.