2Sustain

Over the past few years, many companies have turned to global sourcing and supplier consolidation as ways to reduce operating costs. While there’s no doubt that supply chain strategies like these offer great opportunities for competitive advantage, it’s also important to note that outsourcing and consolidation come with a significant downside: increased risk exposure.  How are business leaders in the US responding to this new reality? Do they feel that their management teams can adequately assess, anticipate, and mitigate these new supply chain risks?

For answers to those questions, check out a new 12-page report, titled “Physical Risks to the Supply Chain –The view from finance.” The report, prepared by CFO Research Services in collaboration with FM Global, presents data collected from a poll of 169 senior financial executives at U.S. companies with annual revenue ranging from $500 million to more than $20 billion. Interestingly, the research for this report focused specifically on threats to physical assets along the supply chain, including infrastructure breakdown, facilities and equipment failures, and other physical hazards.

Here are a few of the key findings:

• 67% of survey respondents said that sourcing production inputs from overseas suppliers is now at least “somewhat common” at their companies.
• 62% expect global sourcing activities to increase during the next three years.
• And, 39% agree that their company’s current global sourcing strategies increase their exposure to physical risks along the supply chain.   

• 40% of financial executives who participated in the study reported that during the past several years, their company has experienced an unexpected physical disruption from internal facilities or equipment failures that negatively affected financial performance.  
• Since 2003, 45% of respondents’ companies have been impacted by natural disasters that negatively affected their financial performance.
• 58% said that some type of physical hazard will be among their companies’ greatest supply chain concerns over the next five years.

• Most respondents said their companies are performing adequately in assessing supply chain risk. About 40% said there is room for improvement.

I’ll admit, that last bullet point surprised me. Only 40% say there’s room for improvement? Did the senior financial executives who participated in this survey consider that, along with natural disasters and other physical disruptions, their companies are facing the credit crisis, a recession, complicated global sourcing networks, new compliance requirements (RoHS, REACH, C-TPAT), looming government regulations, fluctuating energy costs, climate change, resource depletion… ? 

It’s Monday (not Friday), so I won’t go off on a full-fledged rant, but I will say this: by refusing to recognize the complexity of risks inherent in today’s global supply chains, organizations are simply magnifying their vulnerability.  It’s time for companies of all sizes to fully appreciate that they need to start thinking about supply chain risk management in new ways –that’s the pro-active mindset required to compete and succeed in the today’s increasingly complex and risky global marketplace.