Blue chip ‘laggers’ to lose out in global supply wars

Despite the increasing cost and scarcity of raw materials, some 45% of organisations are failing to assess and manage risks in their supply chain, according to research by Aon and State of Flux in their ‘Risks in 21st century supply chains’ report. This is leading to a new breed of 21st century ‘laggers’ among international blue chip companies who could face the disastrous consequences of supply chain disruption in 2008.

Irrespective of industry sector, the expansion of global supply chains and increasing competition for supply is forcing organisations to try and secure raw materials elsewhere to fulfil customer demand. For example, as we begin to see the supply of grain diverting from existing customers to the highest bidder, namely China, customers will need to arrange multiple sources and work on scenario planning around the failure of the supply chain.

However, the survey results indicate that not enough is being done to tackle these risks. Key findings include:
• only 27% stated that managing supply chain risk is a priority area of focus for 2008;
• some 55% of organisations believe they are currently managing and assessing risk in their supply chains;
• only 43% of respondents stated that their supply chain and risk management functions work partially together to manage risk;
• the top 3 strategies for responding to supply chain disruption are dual sourcing, risk acceptance and shared plans with suppliers – but 14% have no strategy;
• the majority of the respondents (53%) use an internal function as the principal source of intelligence on inherent risk in the supply chain. The media is used by 10% of respondents.

An embedded risk culture is what differentiates ‘leaders’, who employ best-in-class management of supply chain risks. For ‘laggers’, on the other hand, disruption to supply chains with disastrous impacts such as erosion of market share or damage to brand may be just around the corner.

Laggers versus Leaders
Governance for laggers: Documented policy
Governance for leaders: Clear accountability, roles, responsibilities, communication and escalation paths.
Scope for laggers: Vertical or ‘silo’ focus for supply chain risk assessment.
Scope for leaders: Supply chain assessments span supply chains, organisational functions, business partners and geographies.
Involvement for laggers: Specific business functions or specific sites.
Involvement for leaders: Harnesses strengths and expertise of procurement, supply chain and risk functions.
Process for laggers: Business continuity plan managed at site-specific level e.g. per site and risk audits conducted per vertical business function.
Process for leaders: Defined process to map, assess, evaluate and manage supply chain risks horizontally across the supply chain, including business partners.

Vulnerability in supply chains can be introduced due to a drive towards efficiency which creates a dependence on key suppliers. Pivotal to achieving resilience and agility of supply chains is a focus on fostering a risk management culture throughout the organisation. This includes providing clarity on accountability, responsibilities, communication and escalation for the management of supply chain risk. It also involves close collaboration between functions, particularly risk, supply chain and procurement and with business partners.

Alex Hindson, head of Enterprise Risk Management at Aon, said: “Only 43% of respondents stated that their supply chain and risk management functions work together to manage risk. Leaders not only achieve resilient and agile supply chains by understanding their risk exposures, but also are able to identify a range of supply chain inefficiencies that enable them to drive improved operational efficiency.”

Finlay Murray, executive consultant at State of Flux, added: “78% of respondents believe that there is inherent risk in their supply chains but that does not appear to translate into placing due focus on this area. The risks that are inherent in the majority of organisations’ supply chains today are growing and require more than untested continuity plans or over-reliance on the resilience of business partners to ensure disruptions are avoided.”

To request a copy of the "Risk in 21st century supply chains" survey please contact finlay.murray@stateofflux.co.uk