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Measuring Supply Chain Risk Management ROI

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Everyone knows that mitigating risk in the supply chain is very important. Nevertheless, supply chain risk management often is still not one of the top priorities in procurement compared to other activities related to increase savings. This is true despite the fear from experts that supply chain risk could already rise again over the next 3 months, according to the latest CIPS Risk Index Report.

To increase the importance of SCRM, we were wondering about the monetary impact and collected some facts and figures from our customers’ experience, which contain recent studies and some examples from the past.

What Our Customers Say:

  • Hit rate increase of risk events 85% (compared to Google alerts)
  • Early risk warning means a reduction of reaction time of 5 days
  • Elimination of manual effort 1 hour/day per purchaser/logistic responsible
  • One hour production standstill = $250,000

What Studies Say:

  • 5% of companies do not have full visibility of their supply chains, while 81% at least had one instance of supply chain disruption last year (1)
  • Supply chain disruptions reduce shareholder value in average by 7% (2)
  • One-point decrease in reputation score associated with about $5 billion lower average market value (3)
  • About 50% savings in contingent business interruption insurance rates by proving supply chain visibility (4)

What Already Happened:

  • General Motors lost over $2 billion due to labor strike that disrupted the production in several US states
  • Canon had a negative impact of $607 million on net sales and a reduction in operating profit of $225 million due to Thailand floods in 2011
  • BMW had a production stop due to Iceland ash cloud in 2010 – 7,000 vehicles were affected
  • The share prices of Toyota fell by 16% and Honda by 13% within 5 days of the Japan earthquake in 2011

(Sources: 1) Zurich / BCI: “Supply Chain Resilience 2014” 2) Word Economic Forum, “Building Resilience in Supply Chains”; 3) Cirano, “Corporate Reputation: Is your most strategic asset at risk”; 4) Source: Sourcing Innovation, “The ROI of Supply Chain Resiliency”)

These examples are very impressive. But still, how does a comprehensive supply chain risk management benefit my company?

The recent study “The ROI of Supply Chain Risk Management” gives detailed information on how

  • savings through process efficiency
  • avoidance and reduction of crisis costs

while providing the source for individual potentials that can be evaluated in monetary terms. In addition companies can evaluate their individual ROI of SCRM by using a free of charge ROI calculator.

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First Voice

  1. Heiko Schwarz:

    Curious about your experiences about the return of SCRM! Appreciate every post and your thoughts on this!

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