While an overwhelming majority of North American companies see risks associated with their supply chain as having grown more significant, complex, and costly, they also consider themselves largely unprepared to deal with these elevated exposures.

A new study of North American risk managers by Marsh Inc. has found that nearly three-quarters of companies (73 percent) believe their supply chain risk has risen since 2005; nearly the same number (71 percent) believe the financial impact of disruptions to their supply chain has also grown.

Most businesses are ill-prepared to handle the rising risk levels, caused by more global and complex supply chains that are increasing supplier disruptions, logistics delays, and product recalls and safety issues. Indeed, no risk managers in the Marsh study considered their companies to be ‘highly effective’ at supply chain risk management. Only 35 percent considered their companies to be ‘moderately effective’ at managing supply chain risk. Meanwhile, nearly two-thirds (65 percent) characterized their supply chain risk programs as having ‘low’ or ‘unknown’ effectiveness, or said they lacked any formal supply chain risk program.

"Concerns about supply chain risks and supplier issues are reverberating in boardrooms and among shareholder groups throughout the US," said Beth Enslow, report author and a senior vice president of Marsh's Supply Chain Risk Management Practice. "Yet, at this point, most organizations are just beginning to take the steps needed to manage these challenges effectively. For risk management professionals, this presents a new opportunity to expand their role and increase the value they bring to their enterprises."

According to Marsh, one of the best practices for managing supply chain risk is the creation of a cross-functional team. However, only 31 percent of those in the study have cross-functional teams to manage supply chain risks. More surprisingly, fewer than one in five (19 percent) companies with more than US$1 billion annual revenue have such teams.

The study identified innovative companies that are blazing trails to improve supply chain risk management and found them taking radically different actions than their peers. For instance, these firms are nine times more likely to have built consistent, company-wide processes for supply chain risk management. And they are more likely to have extended their risk assessments to include direct suppliers, critical raw material suppliers, and logistics partners.

"The often 'siloed' nature of supply chain functions makes it challenging for companies to assess and address their supply chain risks, especially as they relate to product safety and supply dependability across their outsourced manufacturing and distribution activities," Ms. Enslow said. "Companies have hidden interdependencies and supply chain vulnerabilities that can only be identified through cross-functional risk practices that stretch across purchasing, manufacturing, logistics, finance, legal, and the risk management office."

In order to mobilize and partner effectively with supply chain operations, risk managers need to hone their skills in a number of areas. More than three-quarters (77 percent) of the survey participants indicated that for risk managers to be effective, they need to increase their basic understanding of end-to-end supply chain processes. And 79 percent indicated risk managers must strengthen their orchestration skills for networking and interacting across the different supply chain functions.

Marsh's Supply Chain Risk Management Practice conducted the study and authored the accompanying report entitled “Stemming the Rising Tide of Supply Chain Risks: How Risk Managers’ Roles and Responsibilities Are Changing”. Copies of the report are available free of charge here (registration required).

•Date: 18th April 2008• Region: US •Type: Article •Topic: Operational risk
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