- Risk Management
Supply Chain Frontiers issue #36.
Initial responses to a groundbreaking international survey of attitudes toward supply chain risk management offer some valuable insights into the types of incidents that are disrupting supply chains and how frequently company operations are being hit.
The Global Supply Chain Risk Management research project was launched in late 2009 by the MIT Global SCALE (Supply Chain and Logistics Excellence) Network. The project’s main goal is to understand if regional and cultural differences affect how people think about and manage supply chain risks. Central to the research is a survey of supply chain, finance, and business professionals.
When the multi-country survey is completed, the research team will carry out a detailed analysis to compare the responses from each of the countries covered. “We hope to find out how perceptions of risk vary from country to country and how different nationalities handle these threats,” says Dr. Bruce Arntzen, Senior Research Director, MIT Center for Transportation & Logistics, who heads up the project.
A small sampling of the initial data from the larger overall survey provides an early indication of the findings that the research may yield. The sampling of 228 respondents who completed the questionnaire represents mainly senior managers from supply chain, logistics, or operations management. More than 70% of the respondents are from the United States, with the balance representing most regions of the world.
The respondents were asked to give some general opinions on managing risk. They showed a marked preference for risk prevention as opposed to planning and response. Also, most managers indicated that risk planning and prevention should be carried out centrally in an organization, while actual responses should be managed locally.
How successful trading partners will be in dealing with disruptions is influenced by their sense of urgency in such situations. Respondents were asked how closely they were aligned with their suppliers and customers on the degree to which they view on-time delivery as urgent. Almost 50% of respondents confirmed that they regard on-time delivery with the same sense of urgency as their customers. However, significantly fewer (21%) see suppliers as sharing their sense of urgency on this key metric.
Particularly revealing are the survey sections that deal with the types of risks companies are experiencing. For example, respondents were asked to rate how frequently – from “never” to “almost daily” – their supply chains are disrupted by major internal and external events.
Although few respondents reported daily occurrences of major events, 44% indicated that they suffer inventory write-offs due to a new design change about yearly, and 16% experienced such a disruption on a weekly or monthly basis. Spikes in raw materials costs also ranked high as an annual occurrence (43%), with 17% of respondents being hit by this type of disruption every month or week.
Finished goods manufacturing failures were clearly a problem; 28% and 24% of respondents were hit by these breakdowns about yearly and monthly or weekly, respectively. There were similar rankings for failures related to raw material supply, transportation carriers, and product quality.
External events such as earthquakes, floods, and loss of electricity for an extended period happen infrequently, according to the respondents. Economic recession or market collapse was experienced about annually by 17% of respondents. This observation is likely a reflection of the economic pain that respondents are currently experiencing.
Still, estimating how often particular disruptions occur is only part of the risk management challenge; knowing which crises the organization should anticipate is also important. The respondents were asked to list the top three disruptions for which their company sites should prepare. A breakdown in the supply of quality materials – for example, following a supplier failure – was the first choice for one-third of respondents, with interruptions to internal operations ranking second (30%).
Respondents were also asked about their risk management capabilities. Forty-five percent confirmed that they have a formal security strategy, and 40% work with suppliers on supply chain risk management. However, 41% had no business continuity manager or group, and 25% did not know whether their corporate risk manager goes beyond the buying of insurance to work on supply chain issues.
When all the results from the full international survey are in, the team will carry out follow-up interviews to delve deeply into some of the more interesting findings. “We are developing a global map of supply chain risk management that professionals can use to build better supply chains within and across countries, at a time when operational uncertainty is increasing,” says Arntzen.
For more information on the Global Supply Chain Risk Management research project, contact Dr. Bruce Arntzen, barntzen@mit.edu or visit MIT Global SCALE Risk Initiative.