Financial failure tops supply chain risks

LONDON, 1 July 2009 – Financial failure poses the greatest risk to global supply chains say 75% of companies, according to the 2009 Risk in 21st Century Supply Chains survey, the second report from global risk adviser Aon and strategic business partner State of Flux. Pandemics was also cited as a growing concern by 19% of respondents, while physical damage at a supplier’s facility and data security decreased by 10% (to 43%) and 14% (to 29%) respectively from 2008.

The perception of increased risk, particularly financial exposure, is not necessarily borne out by experience with 7% facing losses related to financial failure of suppliers. Although this is significant, the most commonly reported disruptions are due to physical incidents at own sites (14%) and incidents at suppliers (12%).

The report highlighted:
- Prime drivers for taking supply chain risk management seriously are shifting. The credit crunch is a key factor (30%) as corporate governance (down 18% to 58%), best practice (down 24% to 52%) and performance improvement (down 16% to 55%) have slipped down the agenda. Hence risk management is no longer something companies feel obliged to do by external pressure but is now seen as more urgent and vital for business survival.
-85% see suppliers and third parties as introducing more risk into supply chain than previously (up 14%) but rather worryingly only 15% reporting they have a complete understanding of supplier exposures.

Alex Hindson, head of ERM at Aon, said: “It’s time to let go of past certainties as the supply chain threat is very real. This is illustrated by 15% more companies making risk management a priority for 2009 (42% in total), with accountability being raised up the organisation to Board and CEO level. This implies organisations are investing to become more risk aware. Companies must start looking for early warning signs with creditors and debtors to help react effectively and in a timely manner to potential supply chain failures.”