Manufacturers pay £228k a year for poor supply chain planning

Posted on 3 Jul 2012

Business disruptions are costing each mid-sized UK manufacturer an average of £228,000 a year, the highest of any sector surveyed, according to a report published by Zurich Insurance.

The Weakest Link: UK Plc’s Supply Chain explores the impact of supply chain disruptions on mid-corporate businesses in the UK and is based on research among 500 businesses with annual revenues of between £5 million and £300 million across manufacturing, technology, food and beverage, sport leisure and entertainment and wholesale businesses.

Across all five sectors, 88% of organisations surveyed have experienced significant disruptions to their supply chain, although this rises to 97% among manufacturers, who cited the top three common causes as product quality incidents (71%), adverse weather (45%) and supplier bankruptcy (34%).

The average length of disruption experienced by the manufacturing companies surveyed is six weeks, the longest duration across all sectors surveyed.

The manufacturers that took part in the study reported an average of 40 critical suppliers, with the majority (92%) describing their supply chains to be either very important or critical to their business.

For many organisations, the impact of these sorts of disruptions is profound. Almost two thirds (60%) experienced loss of orders and sales, followed by increased operating costs (58%) and reputational damage (54%).

This translates directly into cost for businesses, with manufacturers, who generally have more complex and critical supply chains, taking a hit of £228,000 on average over the past 12 months, compared to the cross-sector average of nearly £200,000.

Dave Carey, head of corporate insurance at Zurich, said: “A well managed and maintained supply chain is essential to the efficient workings of a company. However, the failure to prepare for the worst scenarios can have devastating consequences that resonate across a business, regardless of size. It is clear that supply chains are UK Plc’s weakest link.”

Despite the importance of their relationships with suppliers and the impact on the bottom line, a significant number (61%) of the manufacturing businesses surveyed have not reviewed their supply chain within the last six months, citing ‘not having enough time’ and ‘too expensive’ as two of the main reasons for not doing so.

Nick Wildgoose, global head of supply chain at Zurich, commented: “The lack of preparation and business continuity planning amongst businesses, particularly those who are highly dependent on suppliers, is alarming.  This is despite high profile events such as the volcanic ash cloud, the Japanese tsunami or the Thai floods, for example.

“Businesses need to map out their key suppliers and plan for the worst case scenario, or suffer significant disruptions and associated financial impacts.”