Ready to manage risk? Not yet

Supply chain risk levels appear to be rising fast, yet many companies are ineffective in preventing or responding to that situation, according to the results of a study conducted by insurance broker Marsh Inc. and Risk & Insurance Magazine.

The survey of 110 North American risk managers found that 73 percent of the respondents believed that their supply chain risk has risen since 2005. Moreover, 71 percent said that the financial impact of disruptions to their supply chains has grown as well. Yet the study also found that most businesses are not prepared to deal with rising risk levels. None of the respondents said that their companies were "highly effective" at managing supply chain risk, and only 35 percent considered them to be "moderately effective."

"Concerns about supply chain risks and supplier issues are reverberating in boardrooms and among shareholder groups throughout the U.S.," said report author Beth Enslow, a senior vice president of Marsh's Supply Chain Risk Management Practice. "Yet, at this point, most organizations are just beginning to take the steps needed to manage these challenges effectively. For risk management professionals, this presents a new opportunity to expand their role and increase the value they bring to their enterprises."

Although the report recommended that companies create cross-functional teams as one of the most effective strategies for managing supply chain risk, it found that only 31 percent of survey respondents had done so. Crossfunctional teams can play a critical role because companies often segment various aspects of the supply chain, such as procurement, manufacturing, and logistics, into separate departments. "The often 'siloed' nature of supply chain functions makes it challenging for companies to assess and address their supply chain risks, especially as they relate to product safety and supply dependability across their outsourced manufacturing and distribution activities," Enslow said.

[Source: Stemming the Rising Tide of Supply Chain Risks: How Risk Managers' Roles and Responsibilities Are Changing, Marsh, 2008]