Weak links in your supply chain?

Source: Technology Digital

Date :10/05/2007 09:07:50

Roy Ayliff, Director of Professional Practice at The Chartered Institute of Purchasing & Supply considers the potential for risk in today's complex global supply chain

Whether it was the threat of bird flu, surges in energy prices or the ‘war on terror’, recent world events have laid bare the potential for risk in today’s global and complex supply chains. If the port you use to supply your factory in China closes, have you a backup plan?

By Roy Ayliff

Despite an increase in awareness of the fragility and uncertainty of supply, strategies to deal with it are lagging behind. According to a 2005 Aberdeen Group benchmark study, more than three quarters of the 180 global companies interviewed expected supply outages and disruptions to increase over the next three years. But less than half had procedures or systems to assess and respond to such risks.

Recent research by Cranfield University with the Chartered Institute of Purchasing & Supply (CIPS), AMR Research and supply chain consultants State of Flux all reaffirm this lack of strategic approach in supply risk management – an alarming state of affairs when risks in this environment are increasing.

Origins of risk in the supply chain

In its 2005 Supply Risk Management Benchmark Report Aberdeen groups risks into four areas:

o Supply market risks

o Supplier risks

o Regulatory risks

o Supply strategy risks

Factors that can affect supply markets include constraints in supply; increasing costs of commodities, energy or transport; threats from natural disasters and terrorist attacks; and delivery delays.

The number of risk that suppliers pose to buying organisations are manifold and can come as a result of anything from their profitability, compliance to laws and ethical codes, production capacity, lead times and service levels.

A host of new regulatory requirements present additional considerations for purchasing and supply professionals. For US-listed companies and their suppliers, there is US corporate governance legislation such as Sarbanes Oxley, as well as the revision of civil contingencies provision (Civil Contingencies Act 2004), and British Standard for business continuity (PAS 56 2003) in the UK. Regulation for environmentally responsible products such as WEEE and RoHS also requires companies to more thoroughly assess their supply chains.

Procurement ‘best practices’ that promise increased efficiencies and lower costs have also, unfortunately, brought with them risks. Low-cost country sourcing leads to longer lead times, threats of supply disruptions, security tariffs and currency issues. Outsourcing reduces visibility of supplier performance. And the damage to brand reputation sustained as a result of using suppliers with unethical employment practices has continued to hit headlines over the past few years…

To read the full article, click here