Global business dynamics have changed substantially in the 11 years since the Business Continuity Institute published its first Supply Chain Resilience report. The focus then was creating business continuity plans that could withstand the global recession triggered by the subprime mortgage crisis of 2007. Today, while businesses have benefited from the breakneck pace of technological progress, they also face a more diverse range of potential threats. The report was published before the COVID-19 crisis hit, but the huge supply-chain disruption triggered by this has served to accentuate the report’s messages.
The report’s survey results show buyers are more aware of sources of supply chain disruption, but the complex global business environment they operate in means that mitigating the risks is as difficult as ever. While not all risks can be avoided, the way that buyers use real-time data and manage suppliers can have a huge impact on their supply chain resilience.
The release of the BCI Supply Chain Resilience Report 2019 report followed a year when China/US trade relations, Brexit uncertainty and extreme weather events disrupted global business operations. The survey results show that uncontrollable external threats were the greatest source of concern about future supply-chain operation. This would of course be brutally vindicated by the COVID-19 crisis that hit from December. Despite the disruptions and manifest risks, the report’s survey results show that there is a lot to be positive about how companies are confronting and understanding supply-chain risk. At the same time there are always areas where more work is needed, notably in understanding risks beyond tier 1 suppliers.
Here are the report’s main findings:
Reporting is getting better
More companies are recording, measuring and reporting on supply chain disruptions affecting their commercial performance, with only 23% of respondents saying their organisation does not currently do this kind of reporting. Most of this activity is restricted to specific departments or functions though, with just 25% of companies implementing coordinated, enterprise-wide recording.
As global supply chains continue to become more dynamic and interconnected, companies should be looking to prioritise solutions like big data analytics, Internet of Things (IoT) and Artificial Intelligence (AI) that can give them real-time insights. Over half (57%) of respondents feel that they are currently restricted from fully exploring these solutions due to factors such as budget constraints, legacy infrastructure, cyber-attacks and a lack of skilled workers.
IT is still the biggest source of disruption
The most common causes of supply-chain disruption remain unchanged from previous reports, with IT and telecommunications outages accounting for 44% of all disruption. The other main sources are adverse weather (35%), cyber-attacks (26%), loss of talent (21%) and transport network disruption (16%).
Looking ahead to the next five years, respondents listed a very different set of concerns. The top concerns among businesses were the effects ‘black swan’ events could have on their operations. At the top of the list was terrorism (40%) followed by the threat of disruption from fire (28%). The kind of intense wildfires seen on multiple continents in 2019 and 2020 is expected to be a more regular occurrence as the global climate continues to change. Any survey taken now will surely list virus pandemics among these ‘black swans’.
Are instances of supply chain disruption falling?
2019 saw fewer businesses experience disruptions than in 2018. This could be a result of increased reporting as well as a greater focus on business continuity and supply chain resilience. Equally though, it could be due to a relative lack of weather-related disruptions – 2018 saw huge snowstorms across multiple continents, hurricane Harvey and a long and intense heatwave across Australasia.
The rise in recording and measuring is having a positive impact on those that undertake it. The number of companies experiencing more than five disruptions a year fell by a third, indicating that those that analyse the data are becoming better at predicting and managing risks.
Business continuity plans need to account for tiers 1 and 2
The report also confirms something we say a lot – effective supply chain management means looking beyond your tier 1 suppliers. While incidents with immediate suppliers fell below 50% for the first time, those originating from tier 2 and 3 rose. Supply chain complexity is cited as a key reason why buyers are having a hard time identifying and managing the original source of disruption. A significant portion of buyers (32%) do not currently analyse the source of their supply chain issues.
Businesses are still struggling to quantify their losses
Supply-chain disruption will often be costly for businesses, but few respondents could provide a precise figure for their losses. Partly, this is because some of the effects are hard to quantify, such as lost productivity and increased cost of working. Insurance is also playing a role – 45% of organisations that had experienced disruption were not able to confirm how much of their losses were insured.
Only a quarter of respondents think that the insurance market is providing solutions that meet their needs when it comes to recouping losses caused by their supply chains. This is particularly the case when it comes to cyber-attacks and data breaches.
Supercharging risk management
Companies are getting better at predicting and dealing with many factors that can contribute to major supply chain disruption, but there is still a lot to be done. Supply chain resilience comes from being able to react quickly to challenges and having policies and capabilities to proactively avoid disruption too.
We completely agree with the BCI regarding the need for increased visibility of tiers 2, 3 and beyond. Buyers need to focus on active monitoring and using the data gathered as a strategic asset. Otherwise, they risk continuing to be caught out.