Supply chain failures: a study of the nature, causes and complexity of supply chain disruptions

Companies are finding it increasingly difficult to control their supply chains at a time when the cost of failure is higher than ever, according to the risk management association Airmic. Firms are outsourcing not just production but also their reputation to suppliers without understanding how they operate or having adequate risk management strategies in place.

Speaking at the publication of a new report on supply chain failure, Airmic technical director Paul Hopkin said: “The relentless pressure to cut prices has led to the creation of supply chains of mind-boggling complexity and business models that no one properly understands. When you consider the speed with which information travels, boards should not be surprised when public relations disasters such as the horsemeat scandal take place.”

The report, ‘Supply chain failures: A study of the nature, causes and complexity of supply chain disruptions’ was prepared for Airmic by Dr Alan Punter. It found that businesses frequently have taken inadequate measures to protect their supply chains, that failures have become common and that many firms are ill-prepared to respond to them. It identified seven underlying factors that tend to be present whenever supply chains go wrong. These are:

Off-shoring
Firms now have an international network of suppliers and service providers, which can be all but impossible to monitor adequately.

Increasing complexity
Firms may know their suppliers, but not those further down the chain. It is common for suppliers to sub-contract without informing their customers.

Cost pressures
Contractors feel under so much pressure to cut production costs that they compromise on quality, ethics and corporate responsibility.

Geographic clustering
The Japanese tsunami of 2011 highlighted the fact that many manufacturers had their main and back-up suppliers located in the same areas as each other. When one went they all went.

Modern communication
News travels so fast and is amplified by the social media such that bad news can wreck a reputation before there is time to react.

Modern production methods
‘Just in time’ production has increased vulnerability and reduced the time to recover from supply chain failure.

Increasing dependency
The need to acquire components from many different sources increases vulnerability to supply chain failure.

“Firms that handle their supply chains successfully are those that take an enterprise-wide approach to business continuity and risk management,” said Dr Punter. “The design, manufacturing, purchasing and risk management departments need to all work together.”

www.airmic.co.uk

•Date: 19th June 2013 • World •Type: Article • Topic: Operational risk management

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