When a company is uncertain that its supply chain is disaster-proof, it's difficult to execute on expansion that will lead to growth. High-tech companies have to make sure they have their supplier, distributor, and logistics organizations in perfect working order before they can meet their broad-based strategic goals.
“In my mind, supply chain risks are aligned directly with company concerns about their ability to execute their broader corporate strategies,” said Aftab Jamil, partner and National Director of the Technology & Life Sciences Practice at BDO USA LLP in a phone interview. BDO has recently published a study that concludes supply chain issues are one of the most dominant risks for US technology companies. (See: Supply Chain Issues Are a Leading Risk for Tech Execs, Part 1.)
Regardless of whether the supply chain is managed in-house or outsourced, companies must have disaster-recovery plans in place before they expand geographically, move into adjacent markets, or capitalize on new opportunities, says Jamil.
“Publicly traded companies are under a lot of pressure to grow their business and undertake new ventures. If your supply chain execution is not flawless, [expansion] doesn't happen. Shareholders want to know companies are global players and how they are going to execute global strategies if the supply chain starts tripping up.”
BDO's survey identified the leading risk factors cited by the 100 largest US technology companies. For 2011, the top 10 concerns are, in order:
- Competition and consolidation in tech sector, pricing pressures
- US general economic concerns
- Federal, state, or local regulations
- Failure to properly execute corporate strategy
- Failure to develop or market new products or services
- Legal proceedings
- US and foreign supplier/vendor concerns, supply chain issues
- Management of current and future M&A or divestitures
- Threats to international operations
- Predicting customer demand and interest, innovation
Although supply chain concerns rank seventh on the list, their movement up the list year-over-year has been significant, according to Jamil. Eight-six percent of companies surveyed stressed supply chain concerns, including supplier relations, distribution, and material costs, as a top risk factor, reflecting a 15 percent increase over 2010 (75 percent). “The ramp-up in the supply chain as a risk factor was remarkable, because this survey was done before the disasters in Japan,” Jamil notes.
For more on the report, see Supply Chain Issues Are Top Risk to U.S. Tech Industry, According to BDO Study.