Mitigating risks is talked about so often among supply-chain professionals, you'd think the majority of companies would have mature processes in place and be spinning all sorts of financial performance advantages from them.
But, as is often the case, water cooler buzz doesn't always translate into real-life practice.
Only 41 percent of the 209 companies surveyed are considered to have mature supply-chain risk management processes, according to a recent study by the Massachusetts Institute of Technology (MIT) Forum for Supply Chain Innovation, conducted in conjunction with PricewaterhouseCoopers (PwC).
These are the companies investing in developing advanced risk reduction capabilities. Companies with mature risk processes tend to perform better both operationally and financially, and supply-chain risk management helps all parts of the business — from product design, development, operations, and through to sales — the organizations found.
The glaring downside, though, is that as many as 60 percent of the surveyed companies pay only marginal attention to risk reduction processes. These companies with immature risk processes typically mitigate risk by either increasing capacity or strategically positioning additional inventory, according to the report. (You can read the news and download the 2013 Global Supply Chain and Risk Management Strategy report here.)
Worse still, more than 60 percent of respondents said their performance indicators have fallen by 3 percent because of supply-chain disruptions.
These results validated a few key principles that companies can apply to risk mitigation strategies and prepare for future opportunities. According to the report, they include:
- Mature companies that invest in supply-chain flexibility are more resilient in facing disruptions than mature companies that don't.
- Mature companies investing in risk segmentation are more resilient regarding disruptions than mature companies that do not invest in risk segmentation.
- Companies with mature capabilities in supply-chain and risk management do better along all surveyed dimensions of operational and financial performance than immature companies.
Broadly speaking, as MIT professor David Simchi-Levi, founder of the MIT Forum, points out in a statement, flexibility is a critical cornerstone:
Our survey indicates that supply-chain disruptions have a significant impact on company business and financial performance, and companies that invest in supply-chain flexibility are more resilient to disruption than mature companies that don't. Flexibility is critical to a company's ability to adapt to change. A greater degree of flexibility in their businesses will allow companies to better respond to demand changes, labor strikes, technology changes, currency volatility, volatile energy, and oil prices.
But, as we all know, flexibility is just a high-level starting point to get some semblance of control over something as unwieldy as supply-chain disruptions and risks. MIT and PwC found other actions forward-thinking surveyed companies have taken to reduce exposure to supply-chain disruptions, such as:
- Creating and implementing a business continuity plan
- Implementing a dual sourcing strategy
- Using both a regional and global strategy
- Pursuing collaboration among first- and second-tier suppliers
- Pursuing demand collaboration with customers
- Applying forward buying and hedging strategies
What strategies has your company implemented to ensure that supply-chain risks and disruptions don't eat away at its operations and financial performance potential?