Subscribe to our free, weekly email newsletter!

Risk management key concern for hi-tech shippers

Interruptions and impediments to supply chain operations continue to rank among the greatest concerns for U.S. technology companies
By Patrick Burnson, Executive Editor
May 16, 2012

Interruptions and impediments to supply chain operations continue to rank among the greatest concerns for U.S. technology companies according to an annual report issued by BDO USA, a leading accounting and consulting organization.

Eighty-eight percent of tech companies cite concerns over reliable suppliers, vendors, distribution of products and services, as well as the global distribution chain. This marks the third consecutive year that supply chain concerns have increased (75 percent in 2010 and 86 percent in 2011).

Kelly Marchese, a principal with Deloitte Consulting LLP, in the Manufacturing Operations practice, told LM in an interview that more analytics must be used to mitigate risk:

“This might be a consequence of denial, or a belief that another ‘black swan’ event is unlikely,” she said.

Dr. James Giermanski, Chairman of Powers Global Holdings, Inc. and President of Powers International, LLC, an international transportation security company said the risk/reward scenario must become more balanced.
“This question is one that cannot be really answered objectively,” he said. “First, there is a stark difference in knowing something and doing something,” he said.  “My experience with some incredibly large national and international firms shows that the question of decision making based on risk, especially in today’s economy, will not easily be made.”

The 2012 BDO RiskFactor Report for Technology Businesses, which analyzes the most recent SEC 10-K filings for the 100 largest publicly traded technology companies in the U.S., also found that natural disasters and other geo-political issues pose a serious threat to supply chain management and operations. In fact, 88 percent of companies cited those risks in this year’s study, up from 81 percent in 2011. With business interruption top of mind, more tech companies (73 percent versus 68 percent in 2011) are worried about the maintenance of their infrastructure and information systems. Notably, 71 percent of tech companies cited breaches in security as a major risk, up 25 percent from 2011. The popularity of e-commerce and increased use of mobile devices are contributing to this concern.

“A rise in supply chain and business interruption risks was expected after the fallout from the 2011 Japan earthquake, floods in Southeast Asia and other natural disasters,” said Aftab Jamil, partner and national leader of the Technology & Life Sciences practice at BDO USA, LLP.

“The effects of these incidents extended so deeply into the technology industry and served as a reminder of the fragility of even the soundest supply chain. As tech companies continue to grow and extend their footprint globally, supporting and securing operations is paramount for success.”

Additional findings from the 2012 BDO RiskFactor Report for Technology Businesses include:

• Matching new product development with customer demand proves challenging. With a constant stream of new products and services being brought to market, many tech companies are concerned with their ability to keep up with the competition. Nearly all (99 percent) companies noted industry competition as a top risk factor for 2012. As competition continues to heat up, innovation and appealing to customer interests are top priorities. This sentiment was evident by the 91 percent of companies who view predicting customer demand as a rising risk (up from 85 percent in 2011), and 93 percent of companies worry they may not be able to continue developing new products and services (an increase from 88 percent in 2011).

• Product delays and raw material costs fuel supply chain concerns. As tech companies work to ensure timely development of products and services, several factors threaten their success. Equipment delays, manufacturing issues and product liability were cited as risks by 80 percent of tech companies, up 7 percent from 2011. Concerns over the price and availability of raw materials rose 21 percent in this year’s analysis (41 percent versus 34 in 2011), another result of Japan’s earthquake and tsunami. Moreover, volatility in the global economy has technology companies increasingly concerned about the credit and financial risk of partners, vendors and suppliers (64 percent versus 61 percent in 2011).

• The battle for more IP leads to greater risks and continued legal concerns. Patent disputes are increasing in the tech industry as competitors fight over intellectual property rights to breakthroughs in areas like mobile technology and cloud computing. Poorly defined rights for inventions are leading even the biggest companies to take desperate measures, including banding together to protect themselves against claims of increasingly broad and vague patents. The study results reflect this threat, with 80 percent of tech companies noting IP protection as a significant risk. Additionally, because of the increasingly complex nature of IP rights, litigation costs are skyrocketing, causing many tech companies (83 percent) great concern.

• M&A concerns remain high amid uncertain liquidity levels. Following an increase in the value of technology M&A deals over the past year, more tech companies (88 percent, up from 85 percent in 2011) cite concerns over their ability to successfully complete and integrate acquisitions. M&A risks are also more in focus as companies like Facebook and Google increasingly look to acquisitions to grow their patent portfolios. Given the heavy amount of deal activity, financing remains a priority.

• While the BDO 2012 Technology Outlook Survey found that tech CFOs are more confident in their ability to access capital this year, most companies (69 percent) continue to safeguard themselves against a volatile market by noting access to capital and financing as a major risk.

• Ongoing legislation changes and accounting challenges cause anxiety. With the November election looming, concerns over government regulations are at an all-time study high, with 98 percent of tech companies marking it as a risk. Contributing to the concern is the pending cyber-security bill, currently making its way through Congress, and continued issues involving the roll out of the Dodd-Frank Act. Compliance with new revenue recognition rules and other accounting challenges are likely contributing to the 19 percent increase in concerns over accounting standards and maintaining effective internal controls (69 percent versus 58 percent in 2011).

These findings are from the 2012 BDO RiskFactor Report for Technology Businesses, which examines the risk factors listed in the most recent SEC 10-K filings of the 100 largest publicly traded U.S. technology companies. The risk factors were analyzed and ranked in order by how frequently they were cited.

About the Author

Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).

Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Seasonally-adjusted (SA) for-hire truck tonnage in October at 135.7 (2000=100) was up 1.9 percent compared to September’s 133.1, and the ATA’s not seasonally-adjusted (NSA) index, which represents the change in tonnage actually hauled by fleets before any seasonal adjustment was 139.8 in October, which was 0.9 percent ahead of September.

The average price per gallon of diesel gasoline fell 3.7 cents to $2.445 per gallon, according to data issued today by the Department of Energy’s Energy Information Administration (EIA). This marks the lowest weekly price for diesel since June 1, 2009, when it was at $2.352 per gallon.

In its report, entitled “Grey is the new Black,” JLL takes a close look at supply chain-related trends that can influence retailers’ approaches to Black Friday.

This year, it's all about the digital supply network. In this virtual conference, we will define the challenges currently facing supply chain organizations and offer solutions designed to transform linear operations into dynamic, automated networks that offer seamless communication, visibility, and the ability to respond and optimize processes at any given time.

In his opening comments assessing the economy at last week’s RailTrends conference hosted by Progressive Railroading magazine and independent railroad analyst Tony Hatch, FTR Senior analyst Larry Gross said the economy continues to slog ahead at a relatively tepid pace, coupled with some volatility in terms of overall GDP growth. And amid that slogging, Gross said there is currently an economic hand-off occurring between the industrial sector and the consumer sector.


Post a comment
Commenting is not available in this channel entry.

© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA