Linda Conrad's (of Zurich) column from Forbes makes a convincing case for just how unprepared companies are when it comes to planning for supply chain breakdowns from risk events. To wit, a study Zurich sponsored "showed [that] 85 percent of companies reported at least one supply chain disruption in 2011 with about 50 percent facing more than one disruption" yet at the same time, "eight percent of companies said they ask to see their suppliers' business continuity plans, or investigated who and where their suppliers get their components." Why is this so important -- and why are tools that address the multi-tier supplier challenge like SAP Supplier InfoNet so critical?
The author points out that "over 40 percent of disruptions come from sub-tier suppliers with which a company has no contractual connection," which makes it all the more important to consider risk on the multi-tier level. When it comes to recommending an actionable to confront supply risk, Conrad suggests that one of the first steps companies should take is to assess and quantify their suppliers' risk exposures. But such activity should go far beyond basic reviews of financial data. It should also incorporate areas such as "natural catastrophe modeling, political risk, marine/transportation issues...and historical data from prior disruptions for other companies and industries." In other words, the geopolitical -- and geographic -- matter just as much as scrutinizing balance sheet health and examining supplier performance trending data.
I also like what Conrad has to say about dependencies and interconnectivity companies create within their supply chains and how these can be weak points. To address this further, she recommends mapping "out the value chain, to identify concentrations, bottlenecks and interdependencies, particularly across product lines and business units. For example, the flooding in Thailand last fall demonstrated the importance of ensuring supplier geographic dispersion, as the long recovery shackled the hard disk drive industry."
While we've offered up our own analysis on the topic of supply risk many times, it's refreshing to hear the voice of those outside the software, consulting and procurement worlds tossing their ideas into the equation. The underwriter's perspective is absolutely invaluable and we applaud Zurich for continuing to play a key role in driving thought leadership and market education across this topic.
Below is a Spend Matters supplier/supply chain risk management research brief selection: