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Supply Chain Risk Management a Growing Issue for Companies

Business leaders understand investments aimed to improve their supply chain risk management will need some time to percolate.

According to an Accenture Global Operations Megatrends Study, more than three-quarters of the 1,000 companies surveyed (including 123 retail companies), name supply chain risk management as important or very important to their business, however, only seven percent are currently generating returns of more than 100 percent on their investments to the cause.

Instead, 70 percent of leaders said they expect their investments to generate a return of at least 100 percent in the next two years.

The accelerated pace of new product and service introductions and sustainability is compelling businesses to consider risk management more than ever when designing and operating supply chains, and in its assessment of other areas like cost, service and inventories. In addition to an increase in the perceived importance of risk management, a quarter of businesses said they plan to boost investments by at least 20 percent in supply chain risk management over the course of the next two years, the survey revealed.

That spike in investments is expected to be directed to two areas commonly seen driving supply chain risk: information technology and cost/pricing factors. In general, the survey found that companies are struggling to assemble agile IT operations, which compromises IT’s ability to quickly and effectively respond to marketplace changes and volatility. As a result, quality, supply chain planning, sourcing and procurement, and inventory and logistics are vulnerable. Competition, supply chain complexity, regulations and the global economy remain other risk drivers.

In contrast, manufacturing was least-frequently mentioned as an area exposed to risk. “We believe this is because companies have focused considerable risk management attention and resources on manufacturing for years, and because they have outsourced many aspects of manufacturing to partners that have made risk management a core competency of their services,” the report noted.

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As the scope of operation and supply chain-related risks grows, Accenture noted that there is no “one size fits all” solution to addressing risk. However, the research discovered three commonalities among companies that have generated the highest return on supply chain risk management. First, they make operations risk management a higher priority and recognize the importance of capabilities that help them gain greater visibility and predictability across their supply chains. They centralize their responsibility for risk management, with 43 percent reportedly having an executive or a vice president overseeing its risk management activities. They also invest aggressively in risk management with a specific focus on end-to-end supply chain visibility and analytics.

Mark Pearson, senior managing director of strategy and operations at Accenture, said, “As demonstrated by the leaders in our study, a centralized, top-down approach to supply chain risk management tends to generate the highest ROI on risk management.”  He added, “Such a commitment to risk management also can help managers guard against business disruptions in the wake of natural disasters, geo political events, shifts in commodity or shipping prices, or any number of circumstances that can endanger a company’s operations.”

Of the 24 percent who do not consider operations risk management important, the majority said the events affecting their supply chain are unpredictable and beyond their control, or they claimed to have limited dependency on outside suppliers and therefore already reducing risk.

Regardless of the approach taken, the study shows that visibility is vital as businesses move forward. “Companies should invest in capabilities that enable them to effectively monitor their end-to-end supply chain in real time so they can identify potential threats and proactively respond before they become problems,” the report noted.