Supply Chain Risk Management, still in its infancy

Undoubtedly, every manager in charge of a supply chain has stories of deliveries that got delayed, suppliers that had a major breakdown, factories that suffered from quality issues, shipments that were blocked in a port or products that had to be recalled. Natural disasters – such as floods, volcanic eruptions or earthquakes can also cause major disruptions to supply chains. Ironically, one of the main reasons that supply chain risk has increased in recent years is the implementation of supply chain best practices.

Ironically, one of the main reasons that supply chain risk has increased in recent years is the implementation of supply chain best practices. Low-cost sourcing, lean supply chains, just-in-time, and Vendor-Managed-Inventories have helped reduce inventories and eliminate redundancies in the supply chain. However, these practices have also made supply chain risk more visible: prior to their implementation, buffers and slack in the supply chain concealed certain risks.

Globalisation has also played a role in the increase in supply chain risk over the past decade. Trends such as outsourcing, global sourcing and off-shoring have increased the complexity of the supply chain, making monitoring and control more difficult.

The impact of supply chain disruptions on a company’s financial performance can be substantial. A well-known example is the fire that destroyed a Philips electronics component plant in New Mexico in 2000. This plant supplied both Nokia and Eriksson. Nokia reacted promptly, securing components from the market. Eriksson, on the other hand, was left with supply shortages that translated into an estimated $390 million in lost sales – which led, in the end, to the loss of Eriksson’s market share dominance to Nokia (Sheffi, 2007).

This report discusses some of the results of a study on supply chain risk management conducted by a team of researchers at Vlerick Business School in collaboration with our partner Möbius. We report on two main questions: 1. Which risk factors do companies encounter in their supply chain? And how serious are these risks? 2. How mature are companies at managing their supply chain risks? Over 250 managers responded to our questionnaire. Most of the respondents are active in Western Europe, mainly in Belgium and France. About half of them hold a position in supply chain management. Mid-sized as well as large companies from a variety of industries are represented in the survey.

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