U.S. businesses' increasing reliance on suppliers and sub-suppliers around the world has delivered on its promise of efficiencies and cost savings. But now these benefits are being tempered by a combination of forces: greater regulatory scrutiny in the US, an altered manufacturing landscape in China, the fluctuating dollar, shortages of raw materials, and volatility in energy prices.

Companies are responding, from tightening controls and overhauling packaging to relocating and restructuring. But such measures can be reactive and hasty, and can open the door to new and unanticipated risks. Every day companies are being forced to recall products, delay launches, and answer tough questions from regulators and consumers. Achieving supply chain integrity--which we define as balancing operational objectives with reputational risks--is a more complicated puzzle than ever.

Yet, solving it has become a business imperative. Today's supply chains are stressed because they must deliver the right product at the right place and time while responding to changing stakeholder demands around issues such as environment, quality, and safety. A few leading companies now rightly view the integrity of their supply chain as a source of competitive advantage. But even these companies are finding that today's tough economic climate is a barrier to modifying the traditional role of the supply chain as a reliable source of cost savings.

Anecdotal evidence suggests, but cannot prove, that companies that maintain the integrity of their supply chains are rewarded by stakeholders. It can, however, be proven that those that fail to do so are severely punished. PricewaterhouseCoopers' analysis of 600 companies that experienced supply chain disruptions shows that their average shareholder value plummeted when compared to their peers, their stock prices experienced greater volatility, and they suffered sharp declines in return on sales and return on assets.

For a vast majority of companies, the effects of the disruptions were still apparent a year after they were announced. Supply chain is not simply a system that delivers the final product or service to the end customer; it is also an expression of brand values. That is why companies must continuously balance operational objectives with reputational ones. This is the view of global businesses that have designed their supply chains to support organizational objectives instead of simply wringing out costs. Senior executives in these companies have a shared understanding of how supply chain processes, risks, and transformational opportunities affect corporate goals. They are focusing less on historical data and more on understanding the evolving supply chain environment, and its impact on their future. They understand that turbulence is imminent, but integrity will be their insurance against financial loss from mishaps as well as a foundation for growth.
PricewaterhouseCoopers