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21 August 2013

Supply chain risk "concentrated in sub-tier suppliers"

Content team

Much of the risk involved in the global supply chain arises because many industries are dependent on a small number of 'sub-tier' suppliers that they may not have clear visibility into.

A report from supply chain resiliency specialist Resilinc warned that this concentrates the risk and leaves many firms exposed to the potential for "crippling" supply chain disruptions.

For instance, in the high-tech and automotive supply chain, it was noted that the vast majority of suppliers to the world's biggest firms are themselves reliant on sites owned by just four sub-suppliers. Any issues within one of these small number of companies will therefore have a major ripple effect all the way up the chain.

Resilinc said: "Additionally, because this sub-tier supplier concentration is occurring deeper in their global supply chains, many large organisations are not aware of the risks involved. As a result, they are not adequately prepared to mitigate those risks to ensure global supply resiliency."

A number of companies are highly dependent on these sub-tier suppliers, but may not realise this because they do not have the necessary visibility to understand the degree of dependency, which is why they must work harder to ensure they have the right information available when conducting supply chain risk management.

Chief executive of Resilinc Bindiya Vakil said: "The results of our sub-tier supply chain analysis underline the critical need for deeper sub-tier dependency insights based on ... comprehensive business intelligence."

The study also said that a lack of geographical diversity could pose major problems for many firms. It found that half of the sites it analysed were located in just four countries - China, Taiwan, the US and Japan. Furthermore, there is a high degree of supplier aggregation in 'hot spots' that may be particularly vulnerable to problems such as natural disasters.

One clear example of this came in 2011, when the Japanese earthquake and subsequent tsunami and nuclear crisis in Fukushima highlighted just how dependent the world is on electronic components manufactured in this region.

Content team, Bureau van Dijk

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