Supply Chain Risk Management a Priority for More Companies

Most companies regard supply chain risk management (SCRM) as important to their business, but fewer than one in 10 generate returns of over 100% on their supply chain risk management investments, according to a new study by Accenture.

The consulting, technology services and outsourcing company has issued ‘Accenture Global Operations Megatrends Study – Focus on Risk Management’, revealing the distinct approaches followed by leaders in risk management.

The study of just over 1,000 senior executives across 10 industries in Europe, Asia and North America found that 76% of participating companies describe SCRM as important or very important, while one in four plans increased investments of at least 20% in SCRM in the next two years.

The analysis reveals that while nearly all of the companies represented in the study receive a return on their investment (ROI) in risk management, the leaders – those that generated returns exceeding 100% – had three practices in common that distinguished them from others.

  • Making risk management a priority: Sixty-one per cent of the leaders as compared to 37% of other companies make risk management a strategic imperative and recognise the importance of capabilities that help them gain greater visibility and predictability across their supply chains.
  • Centralising their responsibility for risk management: Forty-three per cent of leaders versus 32% of others had a central risk management function led by an executive in the C-suite or a vice president who oversees all of their risk management activities.
  • Investing aggressively in risk management with a specific focus on end-to-end supply chain visibility and analytics: Leaders were nearly three times as likely to say they planned to boost their investment in risk management by 20% or more in the next two years. Furthermore, nearly seven in 10 leaders said their investments will generate a return of at least 100% in the next two years, as opposed to 4% of others.

“As demonstrated by the leaders in our study, a centralised, top-down approach to SCRM tends to generate the highest ROI on risk management,” said Mark H. Pearson, senior managing director, Accenture Strategy, Operations.

“Such a commitment to risk management also can help managers guard against business disruptions in the wake of natural disasters, geo political events, shifts in commodity or shipping prices, or any number of circumstances that can endanger a company’s operations.”

Pearson added that such a strong commitment to risk management “can contribute to stakeholder confidence in the fundamentals underpinning a company’s business.”

According to the study, the top three sources of risks identified by senior operations executives are information technology (39%), cost and pricing factors (39%) and the global economy (37%). Natural disasters or unforeseen events, such as the 2011 Thai floods or the tsunami in Japan, were only cited by 17% of the respondents, making that the least frequently flagged risk.

The areas most frequently exposed to those and other risks in the corporate supply chains are quality (45%), planning (39%), supply chain skills and talent (38%) and sourcing and procurement (37%), according to the executives.

“Although unforeseen events or natural disasters lead some to give up on risk management, most risks can be managed to not only minimise the downside but also to gain a competitive advantage as a result of being prepared to respond to circumstances when they arise,” said Pearson. “Scenario planning and robust analytics can play a key role in developing effective risk mitigation strategies.”

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