Increase in supply chain disruptions threaten the bottom line


supply chainA recent survey from Deloitte revealed global supply chain executives are worried about increasing risks in supply chain operations. About 53 percent of leaders say disruptions have evolved into more costly threats to businesses than in the past, and 45 percent feel their supply chain risk management solutions are only somewhat effective or not effective at all in mitigating these risks from harming business potential.

The researchers explained that supply chain expansion and interconnected global markets are driving business capabilities and growth, while also leaving enterprises vulnerable to a new range of risks. Disruptive occurrences such as natural disasters and geopolitical events are making it vital to establish risk management solutions to keep supply chains functioning through challenging scenarios. The survey found:

  • 53 percent of executives said supply chain disruptions have become more costly over the last three years
  • The most prevalent increase in supply chain disruption costs were found in technology, industrial products and diversified manufacturing sectors
  • 48 percent of supply chain executives reported an increased frequency in risks with negative outcomes over the last three years, including changes in demand or erosion of margins

Breakdown of outcomes
According to the survey respondents, margin erosion has become the most costly outcome of any supply chain disruption and more than half consider it a top priority when selecting supply chain management solutions. Industries falling victim to margin erosion issues most frequently included consumer products, manufacturing and energy providers.

Furthermore, 40 percent of executives felt a sudden change in demand is another top concern for supply chain operations, as fluctuating customer expectations, short product cycles and emerging competitors all challenge sustainable profits and flexibility. Markets such as retail and technology experience continuous and sudden changes in demand and trends, and find these disruptions to be the most expensive.

Supply chain risk management solutions
As a result of the diverse negative outcomes possible in the global marketplace, executives are valuing the strategic importance of supply chain management solutions to prevent risks. About 71 percent of executives said the growing frequency of costly risks is impacting strategic decision making, and 64 percent have already adopted a supply chain risk management solution to address industry-specific concerns.

Unfortunately, not all supply chain risk management solutions are created equal. Just 55 percent of executives feel their supply chain risk management programs are extremely or very effective, while 32 percent are worried about a lack of acceptable cross-functional collaboration and 26 percent are wary of the cost of implementing the technology throughout operations. In addition, 75 percent of executives fear their supply chain risk management models could lead to less supply chain visibility and collaboration, further increasing the difficulty of assessing and managing risks.

Proper supply chain risk management strategies should include a wide variety of applications and best practices to combat diverse threats. However, just 36 percent of global executives use predictive modeling to ward off threats and 29 percent use risk sensing data, worst case scenario modeling or business simulations. While these tools may seem like a luxury and not worth their cost, the resources help executive deploy proactive management of risk, to reduce costs now and in the future.

Supply chains worldwide have been battling various risks and challenges for some time. With each new obstacle presented to global supply chains comes a solution or innovation to directly address it and push companies forward.  Each challenge not only threatens to disrupt operations, but also have a negative financial impact on business performance and prevent a company from meeting growing demands from consumers and industry regulators. Supply chain risk management technology could increase visibility into the supply chain and help organizations identify and respond to threats more quickly.