The unfortunate events of Hurricane Sandy are still being felt on the Eastern part of the North America, natural events such as these are a clear reminder to plan for supply chain disruption.
Increased reliance on global supply chains demonstrates that 75% – 80% of organizations will experience at least one disruptive incident in the course of a year. But the challenge is that most are not prepared to manage their suppliers and the supply chain risk that comes with it…
Lack of preparedness with Primary Suppliers
Issue: An Ernst & Young poll (2009) found that more than two-thirds of executives (67%) believed that their company would experience adverse effects from the failure of any of their top three suppliers.
Problem: A 2011 survey of 559 respondents from 62 countries and 14 industry sectors demonstrates that 81% of respondents felt they had identified all of their key suppliers, however, only 8% stated that all of their suppliers had some form of business continuity planning in place. (source: Business Continuity Institute)
Insight: While being top of mind for many executives, even if companies are able to identify all of their key suppliers, very few companies have the right tools in place for managing the information and workflow processes around them such as mapping supplier parentage or supplier locations. Due to this lack of insight, most organizations cannot connect the dots and fail to understand of the impact their suppliers have on their business as they continue to struggle with inconsistent or inaccurate supplier information. Moreover, something like a hurricane or other natural disaster can only increase the rate of a decline with troubled suppliers, introducing the potential for further supply disruptions and costs to your business.
Lack of preparedness with N-Tier Suppliers
Issue: 39% of the 575 North American and European IT companies surveyed either agreed or strongly agreed with the statement – ‘We do not have a clear way to assess the risk of going to a third party’. (source: Forrsights Services Survey, 2011).
A 2012 Aberdeen survey shows only 13% of 132 survey respondents currently map 2nd and 3rd Tier supplier risk. (source: Aberdeen Group – Supplier Lifecycle Management: Measuring Performance while Mitigating Risk)
Problem: 40% of disruption originates below the Tier 1 (source: Business Continuity Institute 2011)
Insight: Not only do companies struggle to understand their risk with primary Tier 1 suppliers, but they are also typically unaware or uninformed of their exposure to their key supplier’s suppliers. Events in Japan and Thailand last year highlight the importance of knowing who your second- and third-tier vendors are. Engaging your most critical suppliers in risk evaluations with supplier management tools can provide you deeper insights into their suppliers. But most companies lack of advanced reporting capabilities that can model supplier relationships, align proper contacts and roles, and establish contingency communications for managing against disruptive events.
These are just two examples of the many different considerations of supplier risk. So whether due to natural disasters, geopolitical events, manufacturing issues, social responsibility failures, regulatory noncompliance, or other causes, improved supplier management is critical to fixing these issues.