Majority of firms lack ‘mature’ supply chain risk management: survey

Only 41% of companies surveyed are considered to have “mature” supply chain risk management processes, but nearly four in five mitigate against disruptions by implementing a dual sourcing strategy, according to a recent report.

The Massachusetts Institute of Technology (MIT)’s Forum for Supply Chain Innovation recently released a report, titled 2013 Global Supply Chain and Risk Management Strategy.

“Our research validated that companies with mature risk processes perform operationally and financially better,” according to the report. “Indeed, managing supply chain risk is good for all parts of the business – product design, development, operations and sales.”

The report, announced Aug. 8, was written in collaboration with audit and consulting firm PricewaterhouseCoopers. It was based on a survey of 209 participants whose firms have a “global footprint.” Nearly a third (30.6%) were in automotive and industrial products, 20.6% were in pharmaceuticals and chemicals, 19.1% were in technology and telecommunications, 18.2% were in retail and consumer goods and 11.5% were in the service industries.

Respondents were asked how their firms mitigate against disruptions. A large majority (82%) said they create and implement a business continuity plan, 79% said they implement a dual sourcing strategy, 78% use both regional and global suppliers, 59% establish distribution centres in multiple regions and 48% use a component substitution strategy.

The researchers also asked the participants about the sources of risk to their supply chains. Multiple responses were permitted. About half (53%) said raw material price fluctuations were sources of risk, 47% identified currency fluctuations, 34% identified environmental catastrophes, 28% identified raw material scarcity, 22% identified geopolitical instability, 22% identified supplier partner bankruptcy, 20% identified change in technology, 12% cited unplanned IT interruptions and 5% identified telecommunications outages while only 2% identified cyber attacks as sources of risk to their supply chains.

The report categorized “supply chain and risk management process maturity” into four levels, where Level 1 is the least mature and Level 4 is the most mature.

For example, at Level 1 “product design is performed independently and there is little visibility into partners/suppliers operations,” the report noted. At Level 2, risk management processes are documented and internally integrated but there is minimum visibility into emerging changes and patterns outside the company. At Level 3, however, suppliers are monitored for resilience levels and at Level 4 there is supplier segmentation.

Based on the survey responses, the authors noted, 17% of respondents were at Level 1, 42% were at Level 2, 32% were at Level 3 and 9% were at Level 4.

This means the combined total of respondents at either Level 3 or 4 — 41% — were considered to have “mature processes,” based on their responses.

“Companies with mature capabilities in supply chain and risk management do better along all surveyed dimensions of operational and financial performance the immature companies,” the MIT Forum for Supply Chain stated in a press release.

The authors of the report were: David Simchi-Levi, an MIT engineering professor whose specialties include supply chains and logistics; Ioannis M. Kyratzoglou, a fellow at MIT’s Sloan School of Management and principal software systems engineer at Mitre Corp., a non-profit organization that provides systems engineering, research and development, and information technology support to the U.S. government; and Constantine G. Vassiliadis, Principal Manager for PwC in The Netherlands.

Of the 209 survey participants, 53.1% were based in Europe, 31.1% were based in America and 15.8% were based in Asia, the Middle East or Africa.