Supply chain disruptions plague most companies

Ninety-nine percent of companies surveyed had a supply chain disruption in the past year, with more than half suffering financial losses as a result.

By Allison Manning, Associate Editor -- Modern Materials Handling, 8/27/2008

When it comes to disruptions in the supply chain, few companies can afford to ignore possible risks and hope for the best, according to a recent study by Aberdeen Group.

Nearly all, or 99%, of the companies surveyed had suffered a supply chain disruption in the past year, with 58% suffering financial losses as a result. 

While Aberdeen has done research in the supply chain before, this was the first time a study was fully dedicated to supply chain risk management. Viktoriya Sadlovska, lead co-author on the study, said she was struck by the number of disruptions companies reported, with almost all of the 138 checking off at least one.

The most commonly reported disruptions were: 

• Supplier capacity not meeting demand (56% of respondents)
• Raw materials price increases or shortages (49%)
• Unexpected changes in customer demand (45%)
• Delayed/damaged/misdirected shipments (39%)
• Fuel price increases or shortages (35%)

Aberdeen used four metrics to distinguish Best-in-Class companies (top 20%) from Industry Average (middle 50%) and Laggards (bottom 30%): 

• Percent of shipment from suppliers received complete and on time
• Percent of shipments delivered to customers complete and on time
• Change in the frequency of stock-out events in the past 18 months
• Change in variable distribution costs in the past 18 months.

Best-in-Class companies were twice as likely to suffer no major impact in the form of financial or market share loss or brand damage as a result of disruption. 

“Overall, there’s still a pretty big gap in supply chain risk management,” Sadlovska said.

The study identified a number of risks, including logistics congestion and capacity, risk profile of suppliers, fuel prices, risk profile of a country and non-environmental catastrophic events, and found that Best-in-Class companies were between 28 and 43% more likely to manage those risks.

“Fewer than a third of companies said they were actively managing any of those risks,” Sadlovska said. “That’s very alarming to me.”

A disconnect across the organizations contributes to the lack of management, Sadlovska said. Even though more than a third of companies reported having an enterprise risk department, only 3% said that department was leading in managing supply chain risk management initiatives.

Not collaborating effectively within the company can also put companies at extra risk, when critical thresholds for making decisions are neglected. When decision makers are not alerted on time to possible risks, a more damaging disruption is likely.

“Some companies are far away from having the required level of visibility,” Sadlovska said. 

“It’s not just about one thing,” she continued. “It’s about how they organize the process, how they establish visibility to transportation, their execution and how they collaborate with supply chain partners.”