Is it possible to quantify the cost of supply chain disruptions to shareholder value? Accenture thinks so. Based on research shared in the World Economic Forum Report, on average “supply chain disruptions can reduce shareholder value by 7%, with disruptions affecting stock prices even before formal announcements or coverage of impacts.”
Moreover, stock prices do not recover “for months after the announcement” or specific news coverage. And “the longer it takes to resolve the disruption, the more negative is its impact” on shareholder value. These findings were based on an analysis of 62 supply chain disruptions between 2005-2011, using various sources including media publications and company websites.
CFO also reported on the news in a recent article, Supply Breaks Slash Share Values 7%, suggesting examples of disruptions from the research based on news headlines. These headlines include “Japan Earthquake May Cause Prius Shortage,” “Nissan to Suspend Domestic Lines because of a delay by supplier Hitachi Ltd. in delivering auto-engine components” and “Vestas Shares Fall 20 Percent Following Production Delay Warning.”
Our analysis of these headlines and related incidents in the past suggests the following:
- The type of headline is less important than organizations’ ability to respond quickly to potential disruptions (and to present a mitigation plan with contingencies already in place)
- Companies with supply risk monitoring capability that go beyond looking at supplier financial risk are likely to consider a range of potential disruptions types (e.g., natural disaster, cyber, etc.) and have greater preparation overall
- Procurement and supply chain organizations should build cost models to justify the investment in supply chain risk mitigation strategies based on a range of financial outputs linked to the top line, bottom line and direct shareholder measurements (e.g., stock price)
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