Risks in extended value chain greatest concern in supply chain management – Deloitte
18 April 2013 - 45 percent of global executives lack confidence in their risk management programmes.
Visibility, flexibility, collaboration and control are key pillars of supply chain resilience
Almost two thirds (63%) of respondents to a new survey from Deloitte identified risk in the extended value chain – comprising vendors and customers and where they have less control - as their greatest concern with regards to supply chain risk.
The survey of 600 global executives from manufacturing and retail companies, also found that over half (53 percent) said that supply chain disruptions have become more costly over the last three years. As they operate in an environment of escalating risk, 45 percent of surveyed executives say their supply chain risk management programmes are only somewhat effective or not effective at all.
“Supply chains are increasingly complex and their interlinked, global nature makes them vulnerable to a range of risks,” said Colm McDonnell, Partner at Deloitte Ireland.
“A recent good example of the threat of risk from the extended chain has been those businesses which have been impacted by the identification of equine DNA in food products. It is the increased complexity in addition to the growing number of potential risks which present a precarious situation for companies without solid risk management programmes in place. Quite simply, the importance of adequate risk management programmes has never been greater”
The recent Department of Agriculture report ‘Equine DNA & Mislabelling of Processed Beef Investigation’ identifies a number of areas of risk where a supply chain is long and complex with diversified types of suppliers coupled with the necessity for the integrity of supply.
“Modern business models are designed to have the most suitable supplier for each stage of manufacture. To support this, each organisation needs to have trust and understanding of all of the manufacturing and supplier stages prior to theirs. This is not easy and needs significant oversight when contracts are being drawn up with an on-going audit by independent teams that you can trust. The recent equine DNA issue was about integrity of supply but organisations need to be also vigilant in the future about supply outage which can have just as many negative impacts on a business,” McDonnell advised.
Supply chain programmes not adequately effective
Executives surveyed recognise the strategic importance of supply chain risk, with 71 percent responding that supply chain risk is an important factor in their strategic decision-making. Nearly two-thirds (64 percent) claim to have in place a risk management programme specific to the supply chain. However, only 55 percent of surveyed executives think their risk management programmes are extremely or very effective.
“Many companies have some form of a supply chain risk management programmes, but unfortunately they do not always get the results they need,” said McDonnell.
“To be effective, companies should take a holistic and integrated approach to managing supply chain risk and go beyond traditional approaches. Because of the complex nature of today’s supply chains, disruptions will inevitably occur. True resilience means building in the ability to recover efficiently and decrease the impact of those events.”
Adding resilience to supply chain
According to Deloitte the four important attributes that are critical to supply chain resilience are:
Visibility: The ability to monitor supply chain events and patterns as they happen, which enables companies to proactively—and even pre-emptively—address problems.
Flexibility: Being able to adapt to problems efficiently, without significantly increasing operational costs and make timely adjustments that limit the impact of disruptions.
Collaboration: Having trust-based relationships that allow companies to work closely with supply chain partners to identify risk and avoid disruptions.
Control: Having policies, monitoring capabilities and control mechanisms that help confirm that procedures and processes are actually followed.
Deloitte Ireland has a dedicated supply chain risk management team to help companies build a robust and resilient supply chain. The team works with clients to help prevent and mitigate the risks associated with the supply chain, including macro environment risks, extended value chain risks, operational risks and functional risks.
About the survey
Deloitte conducted a survey of 600 executives from manufacturing and retail companies with a minimum of $100 million in annual revenues to assess their attitudes and challenges in managing supply chain risk. The survey was conducted via both telephone and online interviews from July to October 2012. Thirty-six percent of the companies are headquartered in North America, 28 percent in Europe, 11 percent in China, 11 percent in Japan and 7 percent in Brazil.
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The information contained in this press release is correct at the time of going to press.
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