The ripple effect
How manufacturing and retail executives view the growing challenge of supply chain risk
Supply chains are becoming highly sophisticated and vital to the competitiveness of many companies. But their interlinked, global nature also makes them increasingly vulnerable to a range of risks.
A number of internal and external forces are converging to raise the risk ante for global supply chains. Some are macro trends such as globalization and global connectivity, which can make supply chains more complex and amplify the impact of problems that may arise. Others stem from the push to improve efficiency and reduce operating costs. Although trends such as lean manufacturing, just-in-time inventory, reduced product lifecycles, outsourcing, and supplier consolidation have yielded compelling business benefits, they have also introduced new kinds of supply chain risk and reduced the margin for error.
In mid-2012, Deloitte Consulting LLP surveyed 600 executives at manufacturing and retail companies to understand their perceptions of the impacts and causes of these risks, the actions they are taking to address them, and the continuing challenges they face. Respondents represented large and small companies in a variety of industries, and from countries around the globe, with the majority located in North America, Europe, and China.
Explore some of the survey’s key findings in the following section.
Survey’s key findings
- Supply chain risk is a strategic issue. There are now more risks to the supply chain and risk events are becoming more costly. As a result, 71 percent of executives said that supply chain risk is important in strategic decision making at their companies.
- Margin erosion and sudden demand changes cause the greatest impacts. The most common and the most costly outcomes of supply chain disruptions are erosion of margins and an inability to keep up with sudden changes in demand, which illustrates the extent to which the supply chain risk issue affects the “heart of the business.”
- Most concern about extended value chain. Executives surveyed are more concerned about risks to their extended value chain—outside suppliers, distributors, and customers—than about risks to company-owned operations and supporting functions.
- Supply chain risk management is not always considered effective. Two thirds of companies have a supply chain risk management program in place, but only half the surveyed executives believed those programs are extremely or very effective.
- Companies face a wide variety of challenges. Executives cited a wide variety of challenges including problems with collaboration, end-to-end visibility, and justifying investment in supply chain risk programs, among others. However, no single challenge stood out, indicating the need for broad approaches.
- Many companies lack the latest tools. Current tools and limited adoption of advanced technologies are often constraining companies’ ability to understand and mitigate today’s evolving supply chain risks.
Download the PDF to explore the findings in more detail and discover the four key attributes that are critical to supply chain resilience.
Companies should aim to take a more holistic approach to managing supply chain risk and achieve greater visibility, flexibility, and control. In the long run, the key will be to build a “resilient” supply chain that not only seeks to reduce risks but also is prepared to quickly adjust and recover from any unanticipated supply chain disruptions that occur. Such supply chain resilience is quickly becoming a fundamental requirement.