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Supply Chains Are Failing To Account For Global Risks

The unexpected is now more expected, but supply chains aren't prepared

19May

The latest A.T. Kearney report, ‘Is Your Luck Running Out? Managing Supply Chain Risk in Uncertain Times’, lists 12 risks facing the supply chain through to 2025. The list includes such illuminations as ‘continued global violent extremism’ and ‘accelerating global climate change.’ The majority should be fairly obvious to all supply chain professionals. Indeed, they should be obvious to everyone just as things that are going to change the world over the next decade, not just the supply chain. Where the real concerns for supply chains lie is in the failure of many to put in place contingency plans to deal with the risks, and the lack of urgency evident among those surveyed.

Carrie Ericson, vice president, A.T. Kearney, told SCMR.com that the most surprising finding was how well the level of latent risk was understood by supply chain managers, but noted that there was a real failure to translate this recognition into a solid plan to actually deal with them should they arise. This seems to indicate that many in the supply chain are forgetting that risk management is one of the central concerns of their profession, blinded by the bright lights of their new place within their organization.

Supply chain management’s remit has undoubtedly expanded in recent years, with increased appreciation of the function’s role seeing them move towards the higher echelons of the organization. This means that they are now spending more time doing things like defining business requirements and priorities in the supply market, identifying top-tier suppliers to partner, building relationships with internal stakeholders, and so forth. This is also necessary to ensuring a lean, optimized supply chain that keeps their company competitive in the global market.

With all of this excitement, however, it appears that some of the basics are getting forgotten. Globalization brings innumerable opportunities for supply chain diversification, providing access to more customers and suppliers. It does, however, also greatly increase risk levels. A staggering half of companies surveyed in the report said they lack a plan to ensure supply chain continuity in the event of such risks occurring, a mere 34% had a response plan for changes in supply and demand for top suppliers, and only 36% of companies said they are ensuring their suppliers are complying with environmental sustainability policies,

The findings reinforce those reported last year by the Haslam College of Business’ Global Supply Chain Institute, which surveyed more than 150 supply chain executives across industry and completed in depth face-to-face meetings with six companies. They found that 53% had a backup plan should a natural disaster or major equipment failure shut down a company facility (a factory or a DC), while the rest had none. On average, just 45% said their firm would be able to continue supplying their product should disaster strike in one location, leaving 55% for whom it would cause unreasonable delays.

This apparent lack of urgency when it comes to dealing with risk can be attributed to two things. Firstly, a lack of ownership in risk management at companies. It appears that many have forgotten that it is one of their principle roles. There is also the, quite understandable feeling that there is also a good chance that such risks will not happen, so why spend money on them? Or at least, they’re so far in the future as to not matter at the moment. If you tell a smoker they’re going to die at some point in the future, they’re unlikely to change their ways. If you tell them it’s tomorrow, it will have far more impact. Many of these risks could occur tomorrow though - many are occurring now - and those who fail to mitigate against them are risking the entire future of their business.

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