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APQC recently released a white paper entitled Supply Chain Disruption: What Your Organization Should Know Abut Managing Risk in the Supply Chain, looking at the extent to which supply chain executives and finance managers at large global organizations are concerned about external risk factors to supply chain stability and their risk assessment practices.
An overwhelming majority (83 percent) of the 195 organizations surveyed in APQC's research were caught off guard by an unexpected supply chain disruption in the last 24 months. Are organizations doing everything they can to prepare for supply chain disruptions? The data collected would validate that the answer is no. Only 26 percent of organizations have a supply continuity plan that is sound and meets business needs or is well managed. That leaves 74 percent of organizations exposed to the risk of disruption of physical assets in their supply chain, whether at a company-owned facility or at a key vendor's facility.
For supply chain risk to be managed effectively within an organization, there must be top-down oversight, which requires leadership to take an active role in enforcing risk management at all levels of the organization. The approach to supply chain risk management is strongly influenced by the tone set by the senior leadership, as well as how the organization's leadership has managed risk in the past.
More than three-quarters of organizations that experienced an unexpected disruption in the last 24 months said that the disruption was serious enough to draw the sustained attention to, or intervention by, their top executives. The majority of leaders are in fact concerned about external disruptions to their supply chain. Nearly two-thirds (64 percent) of participating organizations believe that organizational decision makers are satisfied that their supply network has enough built-in redundancy that it is adequately protected if a major supplier experiences serious physical disruption. And of those respondents who believe their decisions markers are satisfied, 60 percent have taken steps to add rigor to the process of assessing supply chain resiliency. This is a good indicator that leaders care about managing risk to the supply chain.
While being concerned about managing risk and having senior leader involvement is important, organizations must turn their concern into a motivator to prepare for supply chain disruption. This involves conducting risk assessments of important and critical suppliers. Two-thirds of organizations with key supply chain partners in areas of the world known for high-impact natural disasters, extreme weather or political turmoil conduct formal risk assessments of their strategic/critical suppliers. A little over half conduct formal risk assessments of their preferred/important suppliers. To adequately mitigate disruption risk, it is important for organizations to conduct regular supplier assessments. Organizations that never conduct such assessments or conduct assessments sporadically open themselves up to greater risk of disruption and a potentially slower recovery from that disruption.
APQC's research shows that having a risk management plan can help reduce the cost of a supply chain disruption. Approximately 78 percent of respondents have pruned their supplier lists over the past five years with the intent of reducing the cost of goods sold. And as many have extended the global reach of their sourcing activities to reach a better balance between sole-sourcing (which reduces costs) and multi-sourcing (which reduces risk). In terms of spending, more than half of organizations surveyed have reviewed the level of safety stock they keep on hand, and one-quarter have decided to increase that investment. The evaluation of safety stock level can influence inventory carrying cost. If an organization has to carry more safety stock, there is a cost with storing it in a warehouse as well as the potential for shrinkage and obsolescence.
Organizations are faced with many obstacles that can undermine the management of supply chain risk. Participating organizations identified the following as the top three obstacles to their supply chain risk management program:
"¢ Having poor visibility into risk factors among Tier 2 and Tier 3 suppliers
"¢ Lacking the resources needed to assess risks at supplier sites
"¢ Lacking a single process owner for management of supply chain disruption
Based on the results of its research, APQC recommends organizations take the following five steps to ensure adequate risk mitigation:
1. Identify all supply chain risk, which include any risks directly to the organization and any risk to key suppliers and their suppliers. These risks should be documented for visibility across the entire organization.
2. Assess the potential impact of each identified risk.
3. Plan how to respond to disruption by having a recovery plan.
4. Provide continuous monitoring and assessing of risk.
5. Make sure the organization and suppliers have the necessary resources to manage risk.
APQC's survey reveals that, although many organizations are concerned about potential disruptions, organizations need to take additional action to ensure that they effectively manage supply chain risk.
Keywords: supply chain risk management, supply chain management, supply chain IT, supply chain solutions, business continuity, disaster recovery plans
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