Just this morning global cloud source-to-pay experts Ivalua published a new report looking into UK businesses’ exposure to risk. It charts where most of that risk comes from, the extent of mitigation planning within businesses, the effect of that risk on the business and what contingency plans could be put in place depending on type of risk.
The report is based on a study, conducted by Vanson Bourne, of 200 UK-based procurement, supply chain and finance professionals at organisations with over 1,000 employees across financial services, manufacturing, telecommunications and retail. It reveals a top-level observation that almost three-quarters (74%) of them have encountered a supply-chain-related risk in the past 12 months. Of these, the biggest supply chain risks have come in the form of supplier failure (48%), supply shortage (46%) and environmental impact such as pollution or waste (33%).
One of the interesting findings is that 84% blame the expanding supplier landscape for making it challenging for them to keep on top of risk management. UK businesses work with 2,598 suppliers on average, just over half of which (51%) are international, and with organisations now trading across borders and accessing emerging markets, this is expected to increase further. In fact, the majority of organisations (58%) expect the number of suppliers they work with to rise, exposing them to even greater risk.
Despite an increasing dependency on suppliers across the globe, the report finds the majority of UK businesses (92%) are unprepared to mitigate against future supply chain risks. 77% say they do not have comprehensive and deployed contingency plans in place to prepare for the impact of geopolitical factors such as tariff changes or Brexit; natural disaster (68%); supplier failure (63%); business environmental impact (63%); modern slavery (61%) or supply shortages (60%).
These are very real risks today and the report cites the carbon dioxide shortage of the summer of 2018 as an example of one disruption we might all remember, when a larger-than-expected number of European carbon dioxide production facilities closed for maintenance. We might not think that a CO2 shortage could cause too much interruption to business, but it’s not just used in carbonated drinks and beers, it’s important within the meat processing industry and other areas of food manufacturing, and has numerous industrial and commercial uses. Thus it became a very serious matter for many businesses, which witnessed a real effect on revenue and profit.
Businesses had to work closely with suppliers to find a solution or an alternative short-term supply to ensure the shortage did not affect consumers. “This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages,” says the report. “Whether it is regulations or supply shortages, businesses can’t continue to allow a lack of visibility to limit their ability to manage risk.”
So why can’t some of these risks be more accurately foreseen and planned for?
“There are multiple barriers preventing UK businesses from mitigating supply chain risk,” the report says. “The vast majority (77%) face challenges gaining complete visibility into suppliers and their activities. 69% say they face challenges with supplier management because data is stored in multiple locations and formats, and two thirds (66%) of organisations face challenges assessing compliance amongst suppliers.”
Alex Saric, smart procurement expert at Ivalua, told Spend Matters:
“While the rapidly evolving supplier landscape presents many opportunities for organisations, this report shows that companies must be increasingly vigilant regarding global supply chain risk. Whether it’s the effects of geopolitical changes, supplier failure or even environmental impact, organisations need to be prepared to deal with every eventuality. If not, they risk being unable to deliver goods and services, falling foul of regulatory fines or exposing themselves to unethical supplier practices that damage their brand.
In order to build solid contingency plans, organisations need to have a complete view of their supply chains, allowing them to assess risk effectively from a single viewpoint. Here, a smart approach to procurement will allow companies to improve supplier visibility, put effective measures in place and identify supply chain risks as they appear. In this way, they can unlock the full potential value of their supply chains and deliver a competitive advantage to the business.”
The full report, “Risky business – how global supply chains have left organisations blind to risk” is free to download here.