Supply Chain Disruptions ‘Significantly Hurt’ Bottom Line
More than 90 percent of companies say supply chain disruptions have a significant impact on a company’s business and financial performance, according to a report from the MIT Forum and PricewaterhouseCoopers (PwC).
The report is based on the 2013 Global Supply Chain and Risk Management Survey, conducted by the two organizations.
A total of 209 global companies completed the survey, which asked participants their views on how key supply chain complexity drivers have evolved over the past three years. Ninety five percent of respondents said that dependencies between supply chain entities have increased; 94 percent stated that changes in the extended supply chain network configuration occur more frequently; and 94 percent stated that new product introduction has been more frequent.
Despite this ground reality, 60 percent of the companies pay only marginal attention to risk reduction processes. PwC says these companies are categorized as having immature risk processes, because they mitigate risk by either increasing capacity or strategically positioning additional inventory.
The other 40 percent do invest in developing advanced risk reduction capabilities and are classified as having mature processes. The data shows that companies with mature risk processes perform better both operationally and financially. According to the report, managing supply chain risk is good for all parts of the business — product design, development, operations and sales.
Given the impact of supply chain disruptions, companies that invest in supply chain flexibility are more resilient to disruption than mature companies that don’t, says MIT Forum founder David Simchi-Levi. Flexibility is critical in adapting to changes in demand and technology, labor strikes, currency volatility, volatile energy and oil prices, he says.
PwC says the survey findings validate five key principles that companies can use to better manage risks to their supply chains and prepare for future opportunities:
- Supply chain disruptions have significant impact on company business and financial performance.
- Companies with mature supply chain and risk management capabilities are more resilient to supply chain disruptions. They are impacted less and they recover faster than companies with immature capabilities.
- Mature companies that invest in supply chain flexibility are more resilient to disruptions than mature companies that don’t.
- Mature companies investing in risk segmentation are more resilient to disruptions than mature companies that do not invest in risk segmentation.
- Companies with mature capabilities in supply chain and risk management do better along all surveyed dimensions of operational and financial performance than immature companies.
Earlier this month, Cargill launched a new assessment tool to help food and beverage customers identify and quantify risks and opportunities in its supply chains. The tool provides the food ingredients company and its customers with data to evaluate sourcing issues that may negatively or positively impact their businesses and brands, such as labor practices, the environment and biodiversity. The tool assigns cost and revenue implications to those risks and opportunities identified in the assessment as having the highest likelihood of occurrence and highest business impact.
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