Executive Briefings

Supply Chain Risks Are Everywhere--and Riskier Than Ever

Maintaining continuity of supply by mitigating risk has always been a critical part of supply chain management. Now, a recent study by SAP and BrainNet based on interviews with 62 chief procurement officers (CPOs) concludes that risk management is growing in importance. With companies sourcing offshore from low-cost and sometimes unstable countries, and with commodities prices more volatile than they have been for years, it's no wonder CPOs are finding risk management so complex. Or, that they're finding so many risks.
According to one study, the most common risks that cause disruptions are, in order: part shortages, ramp/rollout problems, order changes by customers, production problems, development problems and quality problems.
But there are many more risks than evident on that short list. There are also:
• Natural disasters. Energy firms and chemical manufacturers along the Gulf Coast have spent nearly two years trying to repair the damage to their infrastructure from Hurricane Katrina.
• Infectious disease. Many companies sourcing in Asia feared the threat of disruption from the Bird Flu.
• Regulatory pressures, particularly in such industries as biotechnology and pharmaceuticals.
• Financial health of suppliers.
• Geo-political tensions in some parts of the world.
• And even the transitioning to new suppliers, parts or processes.
Moreover, the risks today are, well, riskier. Executives have learned that it's not just continuity of supply that's affected: It's the company's financial performance.
A study found that 33 to 40 percent of companies that have a disruption in supply suffer lower stock returns relative to their benchmarks. Some could also suffer from damage to their brand name.
Source: Purchasing, http://www.purchasing.com

Maintaining continuity of supply by mitigating risk has always been a critical part of supply chain management. Now, a recent study by SAP and BrainNet based on interviews with 62 chief procurement officers (CPOs) concludes that risk management is growing in importance. With companies sourcing offshore from low-cost and sometimes unstable countries, and with commodities prices more volatile than they have been for years, it's no wonder CPOs are finding risk management so complex. Or, that they're finding so many risks.
According to one study, the most common risks that cause disruptions are, in order: part shortages, ramp/rollout problems, order changes by customers, production problems, development problems and quality problems.
But there are many more risks than evident on that short list. There are also:
• Natural disasters. Energy firms and chemical manufacturers along the Gulf Coast have spent nearly two years trying to repair the damage to their infrastructure from Hurricane Katrina.
• Infectious disease. Many companies sourcing in Asia feared the threat of disruption from the Bird Flu.
• Regulatory pressures, particularly in such industries as biotechnology and pharmaceuticals.
• Financial health of suppliers.
• Geo-political tensions in some parts of the world.
• And even the transitioning to new suppliers, parts or processes.
Moreover, the risks today are, well, riskier. Executives have learned that it's not just continuity of supply that's affected: It's the company's financial performance.
A study found that 33 to 40 percent of companies that have a disruption in supply suffer lower stock returns relative to their benchmarks. Some could also suffer from damage to their brand name.
Source: Purchasing, http://www.purchasing.com