April 18, 2013

Supplier Risk Management: What keeps supply-based practitioners up at night?

Rock-a-bye, baby in the tree top, when the wind blows, the cradle will rock.
When the bough breaks, the cradle will fall, and down will come baby, cradle and all.

As a simple nursery rhyme that we all know, it provides an applicable foreboding to the risks faced in supplier management today.  Without the right supplier risk management measures and tools in place, consider some of the statistics that keep supply-based practitioners up at night  –

Supply Chain Disruption:

  • Roughly 85% of companies experience supply chain disruptions – and the leading cause of these disruptions are adverse weather (51%). (Source: Supply Chain Resilience 2012, 4th Annual Survey Published November 2012, CIPs and Business Continuity Institute)
  • One in five companies register a single incident loss of more than €1 million [$1.277 million]
    (Source: Supply Chain Resilience 2012, 4th Annual Survey Published November 2012, CIPs and Business Continuity Institute)
  • 39% of analyzed disruptions originate below the immediate tier one supplier (Source: Supply Chain Resilience 2012, 4th Annual Survey Published November 2012, CIPs and Business Continuity Institute)
  • For those companies that report a supply chain disruption, their average share prices drop 9 percent over two days.
    (Source: PwC study of 600 US public companies that announced supply chain disruptions between 1998 and 2007)
  • Firms that announced major supply chain problems have their shareholder value drop by 10.28 percent with an average recovery time of 50 trading days (Source: Hendricks, K and Singhal V. The Effect of Supply Chan Glitches on Shareholder Wealth, Journal of Operations Management (2003))

Supplier Insolvencies

  • 210,000 UK companies were at high risk of insolvency in 2012, an increase of 2.7% compared to 2011.  This equates to 9% of total companies in the UK. (Source: RSM Tenon, Sector and Insolvency Review 2012)
  • The real number of US business bankruptcies is closer to 15% or 16%, versus the “official” 2.3% as reported by the federal bankruptcy courts. (Source: Lawless and Warren “The Myth of the Disappearing Business Bankruptcy”)
  • Corporate insolvencies hit a record high in Australia, with a total number of insolvencies for 2012 to 10,632, up 1.4 per cent on 2011 and 12.7 per cent higher than during the peak of the financial crisis in 2009. (Source: Australian Securities and Investments Commission, 2013)

Child Labor

  • Earlier this year, Apple has discovered multiple cases of child labor in its supply chain, including one Chinese company that employed 74 children under the age of 16, in the latest controversy over the technology giant’s manufacturing methods. (Source: The Guardian, www.guardian.co.uk, January 25, 2013)
  • There are 215 million five to 17-year-olds trapped in child labor. Globally, numbers are falling at a desperately slow pace. On current trends there will still be 170 to 190 million child laborers in 2020 (Source: International Labour Organisation)

Compliance

  • In 2005, the Department of Justice and the SEC imposed more than $30M in fines and penalties in corruptions cases.  By 2010, the total rose to almost $1.8B. (Source: Clifton Larson Allen, 2012 )
  • A record 735 FCPA enforcement actions were filed in fiscal year 2011 – with over $2.8 billion in associated penalties. (Source: SEC)
  • Future ongoing costs of complying with RoHS are conservatively estimated to be 0.4% of annual revenues, or €273 per employee per year, with costs to SMEs considerably higher. (Source: “Study of the RoHs and WEE Directives”)
  • The estimated cost of Conflict Minerals Reporting compliance will range between $2 – $3 billion, and the annual continuing cost of compliance will be $206 – $609 million. (Source: SEC)
  • The average cost of an HSE penalty in the UK was £20,056 ($30,639). (Source: Health & Safety Executive)

Supplier Information

  • At least two-thirds of financial audits will comment on supplier data accuracy.  (Source: Gartner Research, 2007)
  • The bottom quartile of companies spend 60% of their category manager’s time compiling data, where the top quartile spend less than 30%. This equates to $5 million per year in value lost per every billion in spend.(Source: The Hackett Group, “World-Class Supply Analytics and Information Management”)
  • The lack of consistent, high-quality supplier information is costing the typical Global 2000 company tens to hundreds of millions of dollars – annually!” (Source: SpendMatters, “Accurate Supplier Data”, research on averaged ROI–driven business cases entailing on boarding and compliance, operational efficiency, and financial impact)

Without the proper foundation for supplier communication, process control, and syndication of information, understanding the daily struggles, and fears, over trying to keep an organization running smoothly and effectively today – can make these statistics the pressing concern.

Sleep Well.

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by Grant Watling

Chief Customer Officer

Grant has 11 years management consulting experience specialising in supplier data and analytics advisory services. Grant holds a Master’s Degree (MSc) in International Business, is a Prince2 practitioner and holds certificates from the Institute of Financial Services and the Chartered Insurance Institute.
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