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20 June 2013

Cost of supply chain failure "higher than ever"

Content team

Businesses need to place a stronger focus on managing their supply chains, as the cost of failure in this area is higher than ever, a new report has claimed.

However, despite this, a large number of businesses are finding it difficult to keep these operations under control, due to a variety of converging factors than are making supply chain management a tough activity.

This is according to research by risk management association Airmic, which observed trends such as outsourcing means many firms are placing not only their financial security, but their reputations in the hands of suppliers they have little understanding of.

Technical director of Airmic Paul Hopkin explained: "The relentless pressure to cut prices has led to the creation of supply chains of mind-boggling complexity and business models that no one properly understands."

He added that this, combined with the fact negative news can now spread around the world almost instantly, means board members should not be surprised when public relations disasters occur as a result of poor risk management .

The report, entitled 'Supply chain failures: A study of the nature, causes and complexity of supply chain disruptions' found many organisations have not taken adequate precautions to protect their supply chains.

As a result, failures in these processes have become common and many companies are ill-prepared to deal with issues when to do occur.

Seven underlying factors were identified by the study as common elements when supply chains go wrong. These are;

- Offshoring
- Increasing complexity
- Cost pressures
- Geographic clustering of suppliers
- Modern communication speed
- New production methods
- Increased dependency of complex supply chains

Author of the report Dr Alan Punter stated that in order to combat these challenges, all relevant departments of a business production process - including manufacturing, purchasing and risk management - need to work together to develop solutions.

He added: "Firms that handle their supply chains successfully are those that take an enterprise-wide approach to business continuity and risk management."

Content team, Bureau van Dijk

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