A study of 110 North American companies by Marsh Inc., the world's leading insurance broker and risk advisor, finds that the top two supply chain risk concerns today are pricing risks and supplier disruptions.
Pricing risks are a global phenomenon and lead not just to higher purchasing costs but also to more political instability, labor unrest, regulatory actions, trading partner insolvency, and so on.
These pricing concerns include global energy prices, global food prices, pollution-related regulatory actions, as well as significant labor and raw material cost increases in emerging market countries such as China and India. As a result, companies now are awakening to the realization that prices from lower-cost countries will not remain the same year-over-year. Already, some are shifting operations from China to countries like Vietnam, Thailand, and Malaysia to combat price inflation.
But these new destinations are also experiencing strong inflationary pressures and many have even higher risk levels for natural hazards, political unrest, logistics infrastructure failures, and product integrity challenges. Plus, tack on the rising price of fuel, which is significantly raising transportation costs and impacting the overall cost of goods sold.
To protect against pricing risks (and their domino effect on other risks), companies should reassess their sourcing and logistics strategies and risk management policies. For instance, start monitoring suppliers closer for their financial solvency and credit lines to ensure they have the cash to support your raw material and production requirements.
Already some companies report spotting lower-quality material in products or suppliers experiencing delays because of cash flow issues exacerbated by the global credit crunch. "Concerns about supply chain risks and supplier issues are reverberating in boardrooms and among shareholder groups throughout the U.S.," said Beth Enslow, report author and a senior vice president of Marsh's Supply Chain Risk Management Practice. "Yet, at this point, most organizations are just beginning to take the steps needed to manage these challenges effectively.
Click here to download a complimentary copy of the full Marsh report, "Stemming the Rising Tide of Supply Chain Risks."
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