Supply chain interruptions getting more expensive: survey

Deloitte Consulting LLP recently released results of a survey on supply chain risk, finding 63% of executives surveyed were “highly concerned” about risks within a supply chain that includes vendors and customers.

The report, The Ripple Effect: How Manufacturing and Retail Executives View the Growing Challenge of Supply Chain Risk is based on a survey last year of 600 manufacturing and retail executives, most of whom were located in North America, Europe and China.

“In the survey, 48% of the executives said the frequency of risk events that had negative outcomes has increased over the last three years, while only 21% reported a decrease,” Deloitte says.

“Executives from high-tech companies were most likely to report an increase, with roughly two thirds saying that was the case, followed by those from industrial products and diversified manufacturing companies, with just over half reporting an increase.”

Sources of risk identified by Deloitte include economic events, such as downturns in the global economy, as well as shortages of critical raw materials. They also include political instability, new regulatory requirements and natural disasters such as hurricanes and tsunamis.

More than half (53%) of respondents said these events have become more costly over the last three years, Deloitte said.

When asked about their concerns in the “extended value chain,” which includes suppliers and customers, 13% identified “hazards” as their first concern, while 9% cited infrastructure failure. Eleven percent and 13% of executives identified hazards and infrastructure respectively as their second concern. The top concern, ranked first by 32% and second by 17% of respondents, was economic shifts.

The respondents were also asked which of their strategies to prevent or recover from risk events had been most effective.

Nearly one in four (23%) respondents said developing business continuity and risk contingency plans was most effective, while 9% cited purchasing business interruption insurance.

“None of the strategies listed were ranked highly by more than roughly one-quarter of executives, suggesting that no single strategy is the key, but instead that multiple strategies are needed,” according to the report.

The strategy at the top of the list was “building stronger extended value chain relationships,” cited by 24% of respondents. One in five (21%) cited “building the ability to rapidly adapt the production or distribution network,” while nearly as many (19%) cited “building the ability to rapidly adapt the supply network.”

The executives were from firms with at least US$100 million in annual revenues. It was conducted by phone and online interviews between July and October, 2012.