Report from Accenture and World Economic forum takes deep dive into supply chain and transport risk
March 01, 2012
Dealing with challenges and the unknown is considered a given for supply chain and logistics managers. When the unexpected happens, it is imperative that they are taking steps to manage risks in an efficient and proper manner.
But according to a report from Accenture and the World Economic Forum, entitled “New Models for Addressing Supply Chain and Transport Risk,” that is not always the case.
The report points out that while trends like globalization, lean processes and the geographical concentration of production have increased the efficiency of supply chain networks, it has also changed supply chain risk profiles. And on top of that various events and situations have resulted in organizations—or shippers—reviewing their approaches to identifying and mitigating risks. Some of these events and situations in recent years, which have increased risk preparedness within supply chains and transportation networks, according to the report’s authors, include:
-the global financial crisis;
-flooding in Thailand; and
-the Japanese earthquake and Tsunami
The report found that the biggest triggers of global supply chain disruptions for environmental issues were natural disasters and conflict and political unrest for geopolitical issues. For economic issues, it was sudden demand shocks, and for technology-based disruptions it was information and communications disruptions.
In an interview with LM, Jonathan Wright, executive at the Accenture Operations consulting leadership team, noted that over the last decade, the globalization of businesses has made it crucial for supply chain executives to reassess how they manage the risks facing their organizations.
“A changing global economy has had a pronounced effect on supply chain networks, with businesses facing significant economic pressures to cut cost, resulting in increasingly globalised operating models, and longer and more complex supply chain networks,” said Wright.
What’s more, Wright pointed out that more than 90 percent of the nearly 200 shippers surveyed for this report indicated that supply chain and transportation risk management has become a greater priority in their organizations over the last five years.
And the spate of disasters, said Wright, has raised serious questions about how far retailers and manufacturers will be able to pursue the outsourcing practices that have transformed the world economy over the last decade.
Supply Chain professionals recognize the increasing vulnerability of global logistics and transport networks, said Wright, and for the last 30 years, optimal supply chain procedures have been seen as those incurring minimal costs, such as:
-an increase in the number of actors from source to consumer;
-systems, processes, and governance structures not keeping up;
-lean production mechanisms/JIT manufacturing ensuring minimal inventory levels; and
-bulk ordering via single source suppliers to obtain lower pricing.
“Supply chain risk management has evolved over a period of stability,” said Wright. “We are now entering an era of turbulence and advocating a new supply chain paradigm.”
And because of this Wright said it is not surprising that C-suite level leadership and corporate boards are increasingly understanding and being held accountable for the many aspects of organizational risk.
According to the report, reliance on oil and availability of shared data/information rank as the top two least effectively managed supply chain operations and four of the top five areas of vulnerability relating to visibility and control.
“Reliance on oil was identified as the greatest vulnerability for supply chain networks due to the potential impact of an immediate change in oil availability as a result of external disruptions e.g. the 2012 Nigeria fuel strike,” said Wright. “While there is a growing awareness of the importance of using alternative sustainable energy suppliers—the geographically extended nature of supply chain networks and transport networks makes oil a critical component in the transportation of goods and products. Furthermore the volatility in commodity prices continually impacts businesses margins and unit costs.”
When asked what needs to happen for more shippers to fully understand how to better manage or plan for supply chain disruptions, Wright said that bringing together different public and private sector entities could allow greater sharing of data and information.
And this could in turn could inform public and private sector investments in areas of vulnerability and facilitate the development of proactive risk management solutions.
Metrics and data, Wright added, should drive action and direct attention to a problem, and drive mitigation and/or contingency planning that reduces or mitigates potential risks.
“Businesses need to realise that by operating a dynamic and flexible supply chain they can reduce the amount of risk and exposure by enabling them to plan, prepare and respond to a disruption, thereby reducing the economic impact,” said Wright.
Subscribe to Logistics Management magazine
entire logistics operation. Start your FREE subscription today!