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Have you considered your supply chain exposure?

Supply chain risks can be viewed from several angles. You may for example, be a supplier that is responsible for a critical component of another company’s final product, or you could yourself be the final producer relying on third parties for components. Either way, understanding your supply chain and how you fit into other supply chains or networks is becoming an increasingly important issue for risk managers in Australia.

Most companies are seeking to reduce costs and improve working capital management, while at the same time they are more reliant on their suppliers. This reliance is likely to involve a combination of global sourcing, single sourcing, partnership approaches and just-in-time operations.

Paradoxically, the actions taken to drive down costs are likely to drive risk into the supply chain. In Australia, as they are on a global basis these decisions are being taken against a background of increased market shortages and complexities within supply chains. These risks are compounded by the natural catastrophe exposures such as floods.

The impact supply-chain disruptions can have on company performance can be great. PwC’s analysis of 600 US companies from 1998 to 2007 found that companies that had suffered a supply-chain disruption suffered a significant fall in their share price compared with a benchmark group. These disruptions can impact in a variety of ways including increased costs, lost sales and damaged brand values, for example.

A Business Continuity Institute survey published in November 2013 indicated that about 75% of companies had had a supply-chain disruption over the previous 12 months. Many had experienced multiple disruptions over the same period.

Supply chains affect every part of a business, the way blood flow affects every part of the body. As people are fundamental to the operation of any supply chain, it is also critical that an appropriate risk culture is put in place. Three specific areas can be examined to help mitigate and minimise the frequency and impact of interruption on a business: approach to risk assessment; supplier due diligence; and supply-chain risk tools used to help in the overall analysis.

With the increased globalisation of the world’s economy and ever-growing reliance on suppliers, it is highly likely that every business will experience a supply-chain interruption at some time. It is critical that you ensure your business has put in place processes to help manage this exposure.

 

by NICK WILDGOOSE
Global supply chain product leader,  Zurich Insurance Group

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