Doing Nothing on Supply Chain Risk Management

According to a survey of 300 senior executives commissioned by the Chubb Group of Insurance Companies, the top overseas business threat that companies face is a supply chain failure. Yet, as mentioned in the press release, “only 56% of companies have a business continuity plan that addresses overseas risks, and 22% of companies that do have a plan have never tested it.” Another interesting finding from the survey: sixty percent of respondents don’t require their overseas suppliers and vendors to have a business continuity plan.

“The lack of business continuity plans and testing is disturbing,” said Kathleen Ellis, senior vice president and worldwide manager for Chubb Multinational Solutions. “Companies are left exposed to significant supply chain failures and associated business interruption costs that can undermine their financial results and stability. It is equally important for companies to assess whether their overseas suppliers and vendors also have up-to-date, well-tested business continuity plans.”

These findings are consistent with several other surveys conducted on supply chain risk management. For example, Deloitte surveyed 600 manufacturing and retail executives last year, and 71 percent of them viewed supply chain risk as “an important factor in their companies’ strategic decision making, including 20 percent who view it as extremely important” — but 42 percent of the executives from large companies said their supply chain risk management programs are only somewhat or not effective.

Simply put, it seems like most companies recognize the importance of supply chain risk management, yet many of them are doing very little or nothing to improve their capabilities in this area. Why not?

Supply Chain Risk Management Challenges Companies Face (Source: Adelante SCM)
Supply Chain Risk Management Challenges Companies Face (Source: Adelante SCM)

Companies face several challenges when it comes to supply chain risk management, as the graphic above illustrates. But here’s my short answer, which I have said many times before, including in my 5 New Year’s Resolutions for Supply Chain Executives:

The challenge is getting executives to rethink supply chain risk management — that is, getting to the point where thinking and talking about risk (and taking proactive action to mitigate it) is as common and instinctual as talking and thinking about cost and service. And the first step is asking “What are the risks?” whenever you’re discussing supply chain strategy or decisions. Finding the answers will require a lot of data collection and hard work, but the return on investment will be clearly evident the next time a supply chain disruption occurs and you’re able to recover faster and with less financial impact than your competition.

One final thought: I firmly believe this is an area where third-party logistics (3PL) providers, especially those with a global presence, can help their manufacturing and retail clients. By leveraging their technology, assets, and talent, 3PLs have the potential to help clients recover from supply chain disruptions faster and with less impact — but only if they recognize this opportunity and seize it (assuming, of course, their clients give them the opportunity to begin with).

What are your thoughts on supply chain risk management? Why do you think so many companies are still not walking the talk? Post a comment and share your perspective.

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