Supply chain resilience is increasingly seen as a critical component of an organization’s ability to deal with supply chain disruptions. With growing support from top management more organizations believe business continuity is key to increasing the resilience of their supply chains.
A survey, conducted by the Business Continuity Institute (BCI) and supported by Zurich Insurance Group, found that 74 percent of organizations have business continuity arrangements related to the supply chain. This is up from 63 percent last year.
The Supply Chain Resilience Report 2017 found that organizations are looking at the business continuity plans and arrangements of their suppliers during the contract and procurement process. Thirty-nine percent of respondents said they review their business continuity requirements with key suppliers and their capability to meet them at contract renewals, and 36 percent schedule review meetings with suppliers. Organizations that never review their suppliers’ business continuity arrangements dropped from 16 percent to 13 percent.
“Supply chain disruptions have become increasingly tough for organizations to deal with. The current threat landscape requires very high levels of preparedness, as it includes a wide range of threats such as cyber-attacks, terrorism, and natural disasters,” said Gianluca Riglietti CBCI, Research Manager at the BCI and author of the report,” in a statement. “Professionals understand this, which is reflected in the higher number of respondents adopting business continuity arrangements to deal with supply chain disruptions.”
The report also discovered that companies with these arrangements follow other best practices such as organization-wide reporting of disruption, which increases supply chain visibility. They are also “eight times more likely to report greater supply chain visibility, twice more likely to insure for supply chain losses, and three times more likely to display top management commitment,” said BCI.
But there is still work to be done at many organizations to improve their resilience. Of the 408 organizations surveyed, 69 percent said they do not have full visibility into their supply chains.
In addition, organizations are lagging behind in the use of technology and big data to deal with skills and resource gaps in supply chain management. The survey found that 63 percent of organizations do not use any technology to analyze, track and monitor the performance of their supply chains.
For those that use technology, 41 percent still use Excel spreadsheets to keep track of supply chain disruptions, followed by incident response data (13%), third-party due diligence solutions (10%), BCM software (9%) and financial solvency models (5%).
Companies are also lagging behind in leveraging insurance products to insure against supply chain losses. The survey finds that 51 percent of organizations do not insure against supply chain disruption.
Another key finding revealed that the top cause of supply chain disruption is unplanned ICT and telecommunications outages, cyberattack and data breaches, and loss of talent and/or skills. Fire had the biggest increase this year in terms of threats to the supply chain, said BCI, moving from 14th last year to 7th this year. Both terrorist acts and currency volatility dropped out of the top ten causes of disruptions.
The biggest concerns for organizations over the next 12 months remain the same. Cyber-attacks and data breaches (60%) are their biggest worry followed by unplanned IT or telecommunications outages (59%) and loss of talent /skills (34%). Interestingly, their concerns change five years out. While cyberattack and data breaches (48%) remain their biggest concern in five years, new laws and regulations (40%) jump to number two, followed by unplanned ICT and telecommunications outages (40%) and loss of talent/skills (38%).
Other key findings revealed that 65 percent of organizations experienced at least one supply chain disruption and 22 percent do not analyze the source of disruption. Respondents also shared that 44 percent of disruptions occur at Tier 1, 24 percent at Tier 2, and 10 percent much lower in the supply chain at Tiers 3 and 4.
"It is encouraging to see some progress in terms of the reduction in the level of significant supply chain disruptions, but at 65 percent it is still very high,” said Nick Wildgoose, global supply chain product leader at Zurich Insurance Group, in a statement. “It is important that in terms of your critical value or supply chains you understand your level of resilience and at the very minimum you are able to react quickest to a disruption event. Sometimes being second is not good enough."
The cost of a disruption can be high. Loss of productivity (55%) was cited as the biggest impact and/or consequence of a disruption, followed by increased cost of working (46%) and customer complaints (43%).
There are also economic impacts associated with disruptions. Fifty-three percent of respondents reported losses of less than 50,000 euros (approximately $58,000) compared to 33 percent last year. The report attributes the less costly incidents to an increase in business continuity arrangements and commitment from top management.
Losses of more than one million euros (approximately $1.2 million) dropped from 34 percent to 22 percent. But when asked about the most significant supply chain incident, disruptions costing more than 1 million euros increased from nine percent to 23 percent.
The report draws attention to two important issues of supply chain resilience – reputation and collaboration. BCI said “reputation is still an important aspect in supply chain disruption, which requires organizations to become more aware of the issues around their supply chain and communicate effectively in times of crisis, while collaboration “represents a great resource for effective supply chain management.”