Report: The Cost of Supply Chain Disruptions

One in every three organizations report losses of more than $1 million over the last year due to supply chain disruptions, according to the Supply Chain Resilience 2016 Report. The biggest negative impacts on the companies include loss of productivity, cost of working, and damage to brand.

A key finding of the Business Continuity Institute (BCI) and Zurich Insurance Group report also reveals that the number of disruptions are on the rise. The number of organizations that experienced at least eleven disruptions increased to 22 percent in 2016, up from seven percent last year.

BCI attributes the increased cost of disruption to increases in several areas in 2016. The loss of productivity rose to 68 percent in 2016, up from 58 percent in 2015; the cost of working increased to 53 percent, up from 39 percent, and damage to brand or reputation climbed to 38 percent, up from 27 percent. What may be worse is that 43 percent of the organizations didn’t insure those losses.

“Our study reinforces observations about the growing cost of supply chain disruptions and its negative impact on an organization’s reputation,” said Patrick Alcantara DBCI, senior research associate at the BCI and author of the report, in a statement. “More than ever, it is important to focus on supply chains, identify areas of risk, and deploy appropriate arrangements which increase resilience. Business continuity has an essential role to play in this. Our research abundantly shows how business continuity professionals, working with their supply chain counterparts, can build supply chain resilience and direct management efforts in this area.”

TOP DISRUPTERS
66% do not have full visibility of supply chains
70% experienced at least 1 supply chain disruption
41% of disruptions occur at Tier 1
40% do not analyze the source of disruption
Source: BCI, Zurich Insurance Group

The increase in the number of disruptions for many organizations is a lack of adequate visibility in their supply chains, which has impacts on supply chain management and minimizing disruptions, according to BCI. Case in point: 66 percent of organizations said they do not have full visibility into their supply chains, 27 percent do not have business continuity plans in place to deal with supply chain disruptions, and 14 percent do not identify their key suppliers.

Several best practices that organizations should implement center on supplier communications. According to the report:

“Identifying key suppliers is an important indicator of other good practice which lead to supply chain resilience. As such, it is essential for organizations to identify their key suppliers as part of their supply chain continuity and resilience efforts.

63% of organizations ask their key suppliers (new or existing) regarding their business continuity arrangements, a slight increase from 60% last year. Once more, this behavior coincides with other good practice. These findings affirm the importance of building an organizational culture conducive to supply chain resilience.

The presence of business continuity arrangements among suppliers continues to be variable at best. Findings reveal that 47% of organizations claim that at least half of their suppliers have business continuity arrangements. Only 6% of organizations say that all of their suppliers have business continuity in place (Figure 19). As the lack of business continuity among suppliers might cause negative knock-on effects, organizations should encourage their key suppliers to make their operations more resilient.”

While the report finds that 41 percent of disruptions occur with the immediate supplier, down from 50 percent last year, 40 percent of respondents do not analyze the source of disruption.

The upshot: supply chain visibility is one of the biggest challenges for organizations. The data shows “increased dependencies between suppliers and downstream organizations, reinforcing the need for organizations to understand their supply chain in more depth, identify key suppliers and improve reporting of disruptions,” according to the report.

This translates into the need for top management to drive supply chain resilience and performance. However, only 27 percent of survey respondents report high top management commitment to supply chain resilience, down from 33 percent last year.

The report concludes that top management commitment is required to drive supply chain resilience, and business continuity is a key discipline to build this resilience, which can only be ensured through improved supplier assurance and validation. However, supply chain visibility is still one of the biggest challenges faced by organizations, and supply chain disruptions impact company reputation as much as the bottom line, said BCI.