Supply Chain Risk Management Methods Lag Behind New Risks—and Costs are Rising

Monitoring Frequency

Supply chain shocks are causing debilitating effects on large organizations, especially financially. This impact alone is enough to cause significant damage. With so much on the line, businesses need to know if their current supply chain risk management (SCRM) tools and processes are up to the challenge.

Our new whitepaper, “Supply Chain Disruptions and the High Cost of the Status Quo,” based on a survey of 900 enterprise decision makers about their risk management practices, found:

  • Only 34% assess their global supply chain on a continuous basis.
  • The remaining 66% do so every month or less.

That means the majority or organizations are operating with large gaps in their supplier visibility and risk mitigation solutions. As discussed in a previous post, that vulnerability is costly:

  • On average, global supply chain disruptions cost enterprise-level organizations $184 million in lost revenue per year.

Assessment Methods

The frequency of measurement depends on the type of SCRM methods an organization uses —manual or automated. The former measures supply chains on an irregular basis and at one point in time, while the latter provides feedback in real time on a continuous basis. Nearly three quarters (74%) of organizations use manual methods at least some of the time, with only just over a quarter (26%) solely using automated methods.

There is a current reliance for infrequent monitoring in all sectors. The enormous financial impact many suffer proves current methods are ineffectual, and organizations need to focus on switching to more automated methods because they are still blind to many of the shocks occurring in their supply chain.

Therefore, it’s not surprising that the majority of decision makers (63%) admit that they need to make improvements to their ability to continuously monitor their supply chains.

 

Visibility is currently a critical weakness among many organizations, especially the ability to see in-depth across sub-tiers in the supply chain. Automatic methods can alleviate this deficit in organizations’ supply chain risk management systems. In fact, when asked to name the benefits of using a fully automated method would be, 64% rank supply chain visibility (ecosystem awareness) as the greatest benefit.

Automatic methods may help to reduce the financial burden brought about by disruptions, with two other benefits which rank highly including cost avoidance (56%) and cost reduction (56%). What is clear is that all supply chain decision makers (100%) believe there are benefits to using automatic methods.

Organizations should view an effective and robust monitoring system as essential. Current methods are likely inadequate at preventing large-scale financial damage as a result of supply chains shocks. Those who employ the most efficient methods are likely to be in the best position to protect themselves going forward.

Get More Data on SCRM/TPRM Practices and Improving Risk Mitigation

Our paper goes into more detail on the importance of visibility and supply chain risk management needs, as well as what current practices are helping organizations mitigate risk and which are not up to the task. Get all the insights here.

As Disruptions Grow, So Does the Quest for Better Supplier Risk Management

The diverse and successive nature of supply chain shocks is challenging every organization. Combine that with the high costs associated with disruptions and businesses have a loud and clear wake-up call: better supply chain risk management and improved monitoring are critical needs in today’s environment.

It’s therefore no surprise that supply chain risk management and resilience are going to become increasingly important to organizations. Our new whitepaper, “Supply Chain Disruptions and the High Cost of the Status Quo,” based on a survey of 900 enterprise decision makers about their risk management practices, found:

  • 50% of all surveyed organizations say supply chain risk management (SCRM) and resilience will be their top business priority in two years’ time—while just 39% say they are top priorities today.

As SCRM becomes more critical, the frequency with which those at the board-of-director level discuss the topic reflects this. Overall, over two-fifths of boards (21%) are talking about supply chain risk on at least a weekly basis, with 78% doing so at least monthly.

Supply Chain Visibility

A crucial element of supply chain risk management is the level of visibility that organiza­tions have throughout their supply chain. The less the organization can see across its supply chain, the less it can accurately predict. Intuitively, organizations experience more significant fallout due to disruptions when visibility into their supply chains is lower.

With that being said, it’s not a surprise that the vast majority (88%) of organizations say visibility into their global supply chain is more important now than it was two years ago. The succession, and at times, overwhelming number of recent shocks and related impacts demands that greater importance is placed on visibility.

However, while decision makers note the value that visibility into supply chains can provide them, this does not necessarily translate across the different tiers in an organization’s supply chain.

In fact, visibility levels drop off sharply below the second tier of organizations’ supply chains:

  • 80% say their organization has instantaneous visibility/the ability to continuously monitor their supply chains in the second tier
  • This drops to only 50% at the third and fourth tiers, and only 22% say they can do this at the ninth tier and below

Get More Data on SCRM/TPRM Practices and Improving Risk Mitigation

Our paper goes into more detail on the importance of visibility and supply chain risk management needs, as well as what current practices are helping organizations mitigate risk and which are not up to the task. Get all the insights here.

Supply Chain Disruptions Cost Millions—Here’s How they Add Up

Ensuring supply chain risk management (SCRM) methods are robust enough to keep threats at bay and help organizations stay secure is a critical need today. But a succession of large shocks—including the COVID-19 pandemic, multiple high-profile cyber breaches, and ongoing international trade disputes—have exposed deep supply chain vulnerabilities and revealed shortcomings in SCRM and third-party risk management (TPRM).

Surprisingly, when shocks do occur, little is known about the true extent of the disruption, the wider organizational costs, or damage extending beyond that of a financial nature. Our new whitepaper, “Supply Chain Disruptions and the High Cost of the Status Quo,” based on a survey of 900 enterprise decision makers about their risk management practices, fills in many of those knowledge gaps:

  • On average, global supply chain disruptions cost enterprise-level organizations $184 million in lost revenue per year
  • 83% have suffered reputational damage because of supply chain problems

Looking Deeper at Disruption Data

Our survey found that supply chain events impact geographies and industries in unique ways.

The average revenue loss rises to $228 million for U.S. organizations, compared to UK and DACH where it costs $146 million and $145 million, respectively. There is also a large difference between sectors, with disruptions costing those in IT and technology ($194 million) and aerospace and defense ($193 million) more than financial services, where the average cost to revenue drops to $164 million. However, no matter the location of the organization or the sector they operate within, these costs are an unsustainable and debilitating expenditure.

The cost of supply chain disruptions extends beyond an organization’s revenue, as brand, reputation, and customer perception are also negatively impacted. It’s therefore no sur­prise that more than four in five (83%) of those surveyed say their organization has suf­fered reputational damage as a result of supply chain disruption. Again, those in the U.S. see the most severe impact in this regard, where 87% have suffered, compared to organi­zations in the Nordic countries where 77% say the same.

Understanding Supply Chain Risk Factors

The number of supply chain shocks has grown in recent years. Each disruption proves troublesome for organizations who are likely still reeling from the effects of the previous one. In fact, fewer than 1 in 10 enterprise organizations (6%) say they have not been impacted by supply chain disruptions over the past two years. We can attribute these disruptions across a variety of supply chain threats, with risk spread fairly evenly across all factors. To illustrate this, over the past two years, decision makers report that shocks have been spread across cyber risk and breaches (52%), financial risks (50%), and environmental/social/governance (ESG) (41%), among others.

Decision makers understand the critical need to use SCRM and TPRM to protect themselves against all types of supply chain risk. More than four in five (88% to 81%) believe it is important to guard against all six risk factors. This demonstrates that even if they are not directly impacted by every threat, decision makers understand the wide-ranging sources of disruptions to their supply chains.

Get More Data on SCRM/TPRM Practices and Improving Risk Mitigation

Our paper goes into more detail on the importance of visibility and supply chain risk management needs. It also includes current practices that are helping organizations mitigate risk. Get all the insights here.