While businesses claim supply-chain risks merit a high priority at board level, many still underestimate the potential impact of these risks and face a challenge in terms of expertise in this critical area of risk management, according to a new study.

‘Managing Supply-Chain Risk for Reward’, is a new report from the Economist Intelligence Unit (EIU) sponsored by the insurer ACE.  Based on a survey of 500 global executives with responsibility for risk management, it examines both how companies are being affected by supply-chain risk and how they are responding to it.  It concludes that, while many companies are working on strategies to boost the efficiency and resilience of their supply-chains, many struggle to effectively manage the risks associated with suppliers at a strategic level.

Respondents to the survey clearly identified the impact of the global recession on their supply-chain over the last year.  More than half said they had been affected by rising input costs and swings in energy prices, while a third said that the insolvency of partners or suppliers had caused disruption. 62% of those questioned cited the inability to predict future demand for their products as a major issue and 59% said they had been adversely affected by exchange rate fluctuations. 

Looking ahead, almost 40% of respondents saw continuing unfavourable exchange rates as the key concern for their supply-chains in 2010.  This was followed closely by fears over input price increases and energy price hikes.  Declining customer confidence, the introduction of protectionist measures by governments and further supplier insolvencies were also seen as challenges.  To address these issues the majority of respondents said their organisations were taking significant steps to increase the resilience of their supply-chain.  Two thirds of respondents said they were initiating risk assessments of key suppliers while over half said they were working to improve collaboration with their partners and suppliers.

Improving the efficiency of their supply-chains is also a priority.  In an effort to contain costs, over 57% of respondents reported that they had negotiated lower prices from suppliers over the last year and over a third claimed to have sought increased efficiency from their logistics and increased their reliance on outsourcing. Over a third planned to move from single to multiple suppliers.

Yet, while these tactical measures are welcome steps in the right direction, the survey also confirmed that many companies may still fail to appreciate the potential impact of risks to their supply-chain. Commenting on the report, Phil Wall, Senior Account Engineer from ACE said:  “The vital importance of supply-chain management was recently affirmed with the Confederation of British Industry calling for businesses to ‘re-organise and re-examine’ their approach to working with partners and suppliers to avoid a ‘domino effect’ of supply chain failures.

“Bearing this in mind, the findings of this latest EIU study are encouraging.  It’s good to see many companies actively working on strategies to boost the resilience of their supply-chains and make them more cost-effective and efficient.

“However, it’s not all good news and we are concerned that many businesses aren’t considering supply-chain risk as strategically important and they aren’t developing the expertise to deal with it. We would urge all companies to take this vital area of their business seriously; supply chain risks should not be ignored.”

ENDS

About the research

In September and October 2009 the Economist Intelligence Unit conducted a global survey of 500 executives responsible for risk management in their organisations. The survey, which was sponsored by ACE, was completed by respondents employed in a range of sectors, including financial services (17%), manufacturing (13%), professional services (10%), energy and natural resources (7%), IT and technology (7%), healthcare and pharmaceuticals (7%) and consumer goods (6%). Companies in Asia-Pacific accounted for 33% of the responses, followed by 29% in Western Europe and 28% in North America. About one-half the respondents were C-level executives or board members. More than one-half the companies surveyed have revenues of over US$500m, and one-quarter turn over more than US$5bn a year. Publicly listed companies accounted for 38% of responses and 39% were privately owned but not by private equity.

Contact Information
Media relations: Katie Weeks on +44 (0)207 173 7585 or katie.weeks@acegroup.com 

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