Supply chain managers tighten grip on lower tier suppliers

Supply chain managers have been advised to tighten their control on second and third tier suppliers after a major new report highlighted where disruptions in the supply chain are going wrong.

Research carried out by the Business Continuity Institute (BCI) reveals that 85 per cent of global organisations have recorded at least one disruption to their supply chain so far this year, with 40 per cent of these caused from suppliers below immediate vendors.

It questioned supply chain managers in a range of sectors including the pharmaceutical supply chain, financial services and government across 62 countries, uncovering similar areas where things might be going wrong.

Perhaps tellingly, 81 per cent of respondents said they do not analyse the full supply chain to identify the original source of disruption. The BCI therefore stressed the importance of tracking lower tiers to learn from incidents to mitigate future problems.

"The survey result that 40 per cent of disruptions are below tier one also reinforces the importance of driving supply chain understanding to below the supplier tiers with whom the customer interacts directly," commented Nick Wildgoose, global supply chain product manager at Zurich Global Corporate.

While the causes of disruption varied for different sectors, an overview of all sources revealed that adverse weather was the biggest factor, causing problems for 51 per cent of organisations in 2011.

Unplanned IT or telecom outages affected 41 per cent of firms while transport network disruption was the third most common cause, affecting 21 per cent of supply chain issues.

Accounting for one-fifth of issues were the earthquakes and tsunami in Japan and New Zealand. The BCI noted that this is a significant result as the survey interviewed so many different sectors and countries, illustrating just how connected the global supply chain really is.

The organisation called on businesses to place higher priority on developing more resilient supply chains to cope with these unpredictable events, as well as other vulnerabilities.

It said that business continuity management techniques can help companies better understand supply chain risks and manage them more effectively. Indeed, just eight per cent of respondents said all of their key suppliers had business continuity programmes that dealt with disruption.

"Supply chain risk management is gaining more recognition each year, and for good reason," said David Noble, chief executive officer of the Chartered Institute of Purchasing & Supply.

He added that research carried out by CIPS earlier this year supported claims that some sectors are lagging behind on the awareness of this issue.

"So whether it's energy surges, or adverse weather conditions, the planning and mitigation of that risk will help prevent expensive reputation and revenue damage at the very least," he remarked.

The BCI report showed that there are some notable long-term consequences of failing to properly control the supply chain. The most critical of these was sparking concern among shareholders. Almost one-fifth (19 per cent) of businesses cited this as a problem, followed by a damage to reputation (17 per cent) and expected increases in regulatory scrutiny (11 per cent).

It is important to note that one trend rising in the ranks as a major source of disruption is cyber attacks. Malware and IT security issues have caused problems in eight per cent of cases.

Cyber threats have become a major cause for concern and it was reported last month that the number of cyber attacks has increased over the past 12 months. This has led world leaders to gather in London to create a "global, co-ordinated response" to the threat, UK foreign secretary William Hague said, as attacks are affecting government databases and major companies.

Commenting on the report, Ruth Robottom, supply chain development manager at DHL Supply Chain, suggested that as businesses have sought to cut costs in manufacturing and labour, supply chains have become more stretched and vulnerable.

"Risk assessments, and an overall review of the end to end supply chain, can provide insight, improved visibility and highlight potential risks or disruptions," she said, stressing the importance of business continuity programmes in providing insight into how companies can make supply chains more resilient.

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