Supply chain executives foresee increasing costs from disruptions

Supply chain executives are growing increasingly concerned about the risks to their companies' supply chains and the costs associated with disruptions, according to the results of a recent survey conducted by Deloitte Consulting.

According to the firm's 2013 "Global Supply Chain Risk" survey, 53 percent of the 600 executives canvassed said that supply chain disruptions have become more costly over the last three years, and 48 percent said that such events had become more frequent during that period. "Margin erosion" was cited by 53 percent of respondents as one of their two most costly byproducts of supply chain disruptions. That was followed by "sudden demand change," cited by 40 percent. The latter problem reflected supply chain challenges associated with growing customer expectations, short product cycles, and emerging competitive challenges, Deloitte said.

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Just under two-thirds (64 percent) of respondents reported having a risk management program specific to the supply chain in place, yet nearly half (45 percent) of all respondents said their risk management programs were only somewhat effective or not effective. The biggest challenge to developing a sound risk management program was the "lack of acceptable cross-functional collaboration," cited by 32 percent of respondents. The second most-cited challenge was the "cost of implementing risk management strategies," noted by 26 percent.

Three-fourths of respondents said their supply chain risk management models are organized around functional silos, which can make it difficult to assess and manage risk across an enterprise.

The survey's researchers warned that operating without an effective risk management system poses a significant risk in itself. "Supply chains are increasingly complex, and their interlinked, global nature makes them more vulnerable to a range of risks," said Kelly Marchese, a principal at Deloitte. "This increased complexity, coupled with greater frequency of disruptive events such as geopolitical events and natural disasters, presents a precarious situation for companies without a solid risk program in place."

Deloitte conducted its survey via telephone and online interviews from July to October 2012. Participants included executives at manufacturing and retail companies in North America, Europe, Asia, and South America.

A full copy of the report can be downloaded here.