Choose suppliers wisely to prevent supply chain disruption says BCI

Posted on 29 Nov 2012 by Tim Brown

Business Continuity Institute research has revealed that three in four firms recorded at least one supply chain disruption in 2012, with service failures in outsourced operations one of the top three causes after IT telecoms failure and adverse weather.

A newly published survey from the Business Continuity Institute (BCI) has highlighted the importance that outsourcing decisions have in supply chain resilience, with service issues attributed to outsourcing jumping to third place in the causes of supply chain disruption at 35%, (up from 17% in 2011).

Respondents from 532 organisations across 68 countries also revealed that 73% of organisations recorded at least one supply chain disruption in 2011 with 39% of analysed disruption originating from below the immediate supplier.

Supported by the Chartered Institute of Purchasing & Supply, Zurich Insurance Group and DHL Supply Chain, the survey report concludes that effectively managing supply chain continuity is critical not just because of the immediate costs of disruption, but also the longer term consequences to stakeholder confidence and reputation that may arise following a supply chain failure.

Further findings from the report, which is in its fourth consecutive year, include:

  • The leading cause of supply chain disruption is unplanned IT or telecom outages with 52% of organisations surveyed experiencing some or high impact disruption as a result, followed in second place by adverse weather, experienced by 48% of firms
  • Currency volatility rises to fourth place in this survey of disruption.  While not traditionally seen as a business continuity area, it shows that the business continuity thinking can be more widely applied
  • Disruption is also becoming more consequential – financial costs are higher than in 2011 with one in five companies registering a single incident loss of more than €1 million
  • TheUKleads theUSAin considering supply chain disruption within continuity programmes with 75% doing so in theUK, but only 44% of US-based respondents

Lyndon Bird FBCI, Technical Director at the BCI, said the jump in disruption caused by outsourcing service failures underscored the importance of viewing service chains differently from traditional product supply chains when it comes to resilience planning.

“Service chains are more complex, and can be harder to unwind or replace quickly when they fail,” he said. “In-house skills are also lost over time, so dependency on the outsourcer increases, and thirdly decisions to award contracts are often based on transferring a problem or cost savings, not necessarily the criteria for selecting a product vendor.”

Nick Wildgoose, Global Supply Chain Product Manager at Zurich Insurance Group, said: “In the latest survey, the costs associated with just a single incident are, in over 20% of cases, in excess of 1m Euros rising to 100m Euros. It is therefore critical, especially in the current economic climate, that organisations invest the right amount in their supply chain due diligence and risk management treatment.”

Mark Parsons, Senior Vice President, Business Development, DHL Supply Chain added:
“The report highlights both the ongoing business challenge and the vital importance of ensuring customers address business continuity issues within ever more complex supply chains. As an outsourcing partner we take our responsibilities in this area extremely seriously, focusing strongly to ensure that all our sites have effective business continuity management plans in accordance with the DHL Supply Chain 10 step BCM methodology which is aligned to BS25999.”