Executive Briefings

Supplier Failure and Rising Commodity Price Risks Keep Executives Awake at Night

To analyze the top supply chain risks that enterprises are facing today, AMR Research conducted a survey with 100 global companies. We asked respondents to rank supply chain risks, ranging from commodity price fluctuations, supplier failure, logistics costs, economic downturn, geopolitical risks, and environmental risks.

The survey's key findings are as follows:

1. Respondents believe the level of risk is increasing for 13 of the 14 supply chain risk categories identified in our survey.
2. The two top risks for global companies are commodity prices and volatility and supplier failure. Commodities spans fuel and non-fuel commodities needed for supply chain operations. Supplier failure risks span supplier inability to meet capacity and time commitment or financial instability.
3. Risks associated with transportation provider service failure, port delays, overall transportation capacity constraints, and rising transportation costs rank third. However, the majority of respondents believe this risk has decreased or remained the same compared to one year ago.

Commodity prices and supplier failure top the risk list: Non-fuel and petroleum commodity prices have reached record highs. According to the IMF, the commodity price index has risen by a cumulative 10% in 2008, after having already increased by about 30% between December 2006 and December 2007. Because of this, it's no surprise that commodity price and volatility is the top supply chain risk at 52%. For process manufacturers, commodity prices are the top risk by a large margin, coming in at 61%.

Global companies are still grappling with defining the best supplier base across complex supply chains. These challenges are reflected in the 2:1 ratio of companies believing their supplier failure risk has increased to those that believe it decreased over the past year.

As the economic downturn hits businesses, risk has only increased: Because of the softening economy, sectors like industrial equipment and building materials have already been hit hard by shrinking capital expense budgets and the weakening housing market. High-tech and automotive also will likely suffer from dwindling consumer spending. The risk of an economic downturn ranks fourth across all respondents, as well as for process manufacturers.

Given the uncertainty associated with the severity and duration of this current downturn, most companies don't foresee much relief in the near future. In the survey findings, respondents ranked this risk as the one with the biggest increase over the past year, with 54%.

Environmental risks rank high as firms build green supply chains: Building environmental sustainability across global supply chains is a top priority for business executives. In the short term, though, many are struggling to measure their current Scope 1, 2, and 3 GHG emissions in order to benchmark their environmental performances.

Many companies are also bracing themselves for the possibility of more stringent environmental regulations and requirements that would affect their abilities to control costs and meet customer requirements.

Though highly disruptive, geopolitical and natural risks rank low: Natural disasters like hurricanes and tornadoes can wreak havoc on a company's supply chain, shutting down its plants or preventing its suppliers or logistics providers from fulfilling their commitments. Similarly, political instability in an offshore country can mean major disruptions to material sources or manufacturing continuity.
http://www.amrresearch.com

To analyze the top supply chain risks that enterprises are facing today, AMR Research conducted a survey with 100 global companies. We asked respondents to rank supply chain risks, ranging from commodity price fluctuations, supplier failure, logistics costs, economic downturn, geopolitical risks, and environmental risks.

The survey's key findings are as follows:

1. Respondents believe the level of risk is increasing for 13 of the 14 supply chain risk categories identified in our survey.
2. The two top risks for global companies are commodity prices and volatility and supplier failure. Commodities spans fuel and non-fuel commodities needed for supply chain operations. Supplier failure risks span supplier inability to meet capacity and time commitment or financial instability.
3. Risks associated with transportation provider service failure, port delays, overall transportation capacity constraints, and rising transportation costs rank third. However, the majority of respondents believe this risk has decreased or remained the same compared to one year ago.

Commodity prices and supplier failure top the risk list: Non-fuel and petroleum commodity prices have reached record highs. According to the IMF, the commodity price index has risen by a cumulative 10% in 2008, after having already increased by about 30% between December 2006 and December 2007. Because of this, it's no surprise that commodity price and volatility is the top supply chain risk at 52%. For process manufacturers, commodity prices are the top risk by a large margin, coming in at 61%.

Global companies are still grappling with defining the best supplier base across complex supply chains. These challenges are reflected in the 2:1 ratio of companies believing their supplier failure risk has increased to those that believe it decreased over the past year.

As the economic downturn hits businesses, risk has only increased: Because of the softening economy, sectors like industrial equipment and building materials have already been hit hard by shrinking capital expense budgets and the weakening housing market. High-tech and automotive also will likely suffer from dwindling consumer spending. The risk of an economic downturn ranks fourth across all respondents, as well as for process manufacturers.

Given the uncertainty associated with the severity and duration of this current downturn, most companies don't foresee much relief in the near future. In the survey findings, respondents ranked this risk as the one with the biggest increase over the past year, with 54%.

Environmental risks rank high as firms build green supply chains: Building environmental sustainability across global supply chains is a top priority for business executives. In the short term, though, many are struggling to measure their current Scope 1, 2, and 3 GHG emissions in order to benchmark their environmental performances.

Many companies are also bracing themselves for the possibility of more stringent environmental regulations and requirements that would affect their abilities to control costs and meet customer requirements.

Though highly disruptive, geopolitical and natural risks rank low: Natural disasters like hurricanes and tornadoes can wreak havoc on a company's supply chain, shutting down its plants or preventing its suppliers or logistics providers from fulfilling their commitments. Similarly, political instability in an offshore country can mean major disruptions to material sources or manufacturing continuity.
http://www.amrresearch.com