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Supply-Chain Disruptions Hurt Performance & Take a Hefty Toll

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?

12 comments on “Supply-Chain Disruptions Hurt Performance & Take a Hefty Toll

  1. jbovit
    August 22, 2013

    Thank you Jennifer for taking the time to cover such an important topic.  Resilinc just published some research findings that your readers might be interested in. http://www.resilinc.com/global-supply-chain-risk-is-concentrated-and-concealed-in-sub-tier-suppliers-according-to-new-findings-from-resilinc/

    Thank you again,

    Jon Bovit

  2. ahdand
    August 23, 2013

    I feel that SCM can do much more better things than this. It's a worry for them indeed but every application do have bugs and it will come up only when you throw it to your customers to try it out.  This is a similar example    

  3. Jennifer Baljko
    August 23, 2013

    Thanks @jbovit. Took a quick look at the findings, and this stood out for me: “Resilinc found that a number of companies are highly dependent on these sub-tier suppliers but do not always have the visibility to quantify the degree of dependency and accurately understand their exposure.  Additionally, Resilinc found that more than 50% of all sites analyzed are located in just four countries: Taiwan, China, the USA and Japan.”

    Not surprising to see the 4 countries listed given how the electronics industry works in certain hub countries, but am surprised that visibility issue is still hard to quantify.

  4. jbovit
    August 23, 2013

    Yes, exactly Jennifer.  Feel free to send me your contact information at jon.bovit@resilinc.com and I will include you in future announcements.

    Thanks!  Jon

  5. Hailey Lynne McKeefry
    August 23, 2013

    @nimantha.d: I am a firm beleiver that most of life is less about what happens than what you do with it and about it. It is shocking to hear that many organizations wait to assess risk until the event is upon them. This sort of pre-thinking lets organizatoins react better when the  inevitable glitch happens.

  6. Hailey Lynne McKeefry
    August 23, 2013

    @Jennifer, it seems to me that this is a sign that good communicatoin and visibility needs to penetrate further into the supply chain to include these “sub tier suppliers”.

  7. Lavender
    August 25, 2013

    Thank you, Jon!

    The link presents much information about supply chain. 

  8. ahdand
    August 25, 2013

    @Hailey: Yes but it does not apply only for SCM. Good communication and visibility options are vital for any system and process since those two factors play a deciding role on the business that you run.  

  9. SP
    August 26, 2013

    Good points to reduce supply chain disruptions. All mature organizations have these points in paper and company official documents but the key is to proactively follow these and take actions when needed. Decision making is another critical thing.

  10. Hailey Lynne McKeefry
    August 26, 2013

    @SP, yes… use them, but also evolve and change them over time. Last year's good plan may not be appropriate today.

  11. edcfinelli
    August 27, 2013

    15 years ago, serving as materials Manager for a major multi-national oil company in Brazil, PETROBRAS forced cementing and fracturing services companies of oil wells to manufacture chemical products with commodity local raw materials, maintaining the confidentiality of their formulas. This that at the beginning was considered to be an alarming news, with the passing of time was understood it as an important solution to deal with the lack of foreign currency and exchange controls implemented in many countries, that undoubtedly could have significantly hurt the continuity in the operations. Alternatives such as this, are short and long term solutions

  12. Mr. Roques
    August 28, 2013

    How much, on average, does it cost to have a mitigation-plan set up? Is it more than 3%? Then you're done. 

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