posted on 5/3/2011 2:38:30 PM
A new study of supply chain management and risk mitigation shows that most manufacturers prefer to bury their heads in the sand until disaster strikes.
Editor's note: The currrent version of this article provides demographic information on the survey's participants that was unavailable at the time of initial publication.
In the wake of earthquakes and tsunamis in Japan, tornadoes across the American South, and various and sundry disruptive forces, manufacturers’ investment in supply chain risk management is “pathetically low,” says a new report from SCM consultancy ChainLink Research.
In a survey conducted in late March and early April, chief research officer Bill McBeath found that more than 45% of companies devote less than $50,000 each year to “assessing and auditing supplier and supply chain risk.” The total spend was defined as money spent on labor, IT, services, travel, and other costs related to a company’s supply chain risk program.
Approximately 100 companies were surveyed, nor their average size, more than 45% of which reported annual revenue in excess of $1 billion. Another quarter of respondents reported sales of $250 million to $1 billion.
Approximately 24% of respondents said they spend $50,000 to $250,000 on supply chain risk, while the same percentage devote $250,000 to $1 million to such efforts. Just 5% spend more than $1 million, and none of the companies surveyed spend more than $3 million per year.
In part, that may be because responsibility for supply chain risk assessment falls disproportionately on lower-level managers, who may not have the budgeting power to prioritize supply chain risk mitigation. Sixty percent of respondents to the ChainLink survey reported that an individual contributor or department manager within a functional unit reviews and manages supply chain resiliency. Fewer than 20% of companies assign that responsibility to the CEO or the CEO’s executive team.
The researchers cite earlier ChainLink research that found a strong correlation between supply chain disruptions and tumbling share prices for public companies. In his assessment, McBeath gives the impression of a corner preacher ignored by passersby.
“Considering how devastating disruptions can be to the brand, shareholder value, competitiveness, and a firm’s ability to trade, we continue to assert that building a resilient supply chain is one of the most important assets and competitive foundations that a company can develop,” he wrote.
But despite the still-meager budget apportionments, supply chain protection is more often heard in conversations around the executive offices than it was a decade ago, he said. With respect to suppliers in particular, more than 85% of survey respondents said supplier risk assessment is either critical and mandatory or is often considered during supplier selection.
McBeath fears that some companies may merely be paying lip service to the assessment process, however, since fewer than 30% ask suppliers to meet published risk resilience standards.
For more on the study, visit ChainLink’s Website.
Or visit TechMATCH to explore supply chain management software offerings.