Supply chain risks are on the rise, as is their potential impact on business performance and shareholder value. A recent study found that 85 percent of global supply chains had experienced at least one significant disruption over the preceding 12 months. Another study found that firms that suffered from a publicly-announced supply chain disruption delivered shareholder returns approximately 30 percent lower than their peers. Results like these are too important to ignore – and the risks are only increasing.
A variety of internal and external forces are driving the rise in supply chain risk. Some are macro trends such as globalization and global connectivity, which are making supply chains more complex and amplifying the impact of any problems that may arise. Others stem from the never-ending push to improve efficiency and reduce operating costs. Although trends such as lean manufacturing, just-in-time inventory, reduced product lifecycles, outsourcing, and supplier consolidation have yielded compelling business benefits, they have also introduced new kinds of supply chain risk and reduced the margin for error.
Events that were once considered “black swans” –, high impact, but low probability events– now seem to be an almost regular occurrence. This is not necessarily because problems are happening more often, but because in a globally interconnected business environment, problems that used to remain isolated now have far-reaching impacts.
At the same time, customer expectations and product life cycles continue to shift. Today’s buyers expect businesses to deliver a continuous stream of products that are better, faster, and cheaper – while acting responsibly toward society and the environment. And thanks to social media and the Internet, if a company has a weak link or one of its supply chain partners stumbles there’s a good chance the public will learn about it even before the CEO does.
All of these trends are challenging traditional notions of “acceptable supply chain risk.” In this increasingly complex and challenging environment, what can an organization do to manage its risk exposure and protect the value of its business and brand?
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