Supply Chain Resilience: The Best Defense Against Growing Global Risks
The latest in a series of reports from DHL finds that businesses equipped with an explicit risk management focus stand a far better chance of survival in today’s complex world.
Building resilience to expect the unexpected is the best defense against supply chain disruption, and global companies who get it right could avoid million dollar losses and enjoy organization-wide competitive advantage.
This is one of the central findings presented in DHL’s new InsightOn report on risk management and supply chain resilience.
Supply chain risk has been a major unintended consequence of two of the most significant trends of recent decades: globalization and lean production. The report reveals that 74 percent of companies surveyed suffered disruption in their supply chain in 2015 as conflict in the Middle East, catastrophic fires at Tianjin port, industrial action in U.S. ports, and other global disasters made 2015 a tough year for global supply chains.
Between 2000 and 2010, losses caused by supply chain disruption averaged $115 billion per year. That figure escalating to $380 billion in 2011. The cost in 2015 is expected to be higher; port delays are estimated to have cost U.S. retailers $7 billion.
“The modern economy runs on interconnected global supply chains, but with distance and complexity come new types of risk from natural and manmade disasters, climate change, and socio-political and economic factors from war to strikes and crime,” said Bill Meahl, chief commercial officer at DHL. “Any company relying on complex supply chains needs to improve its risk management and our report provides insights and methodologies to help companies develop smarter strategies. The goal is to build resilient supply chains, ones that will also give companies a competitive edge.”
The InsightOn: Risk and Resilience report, the latest in the DHL series, finds that businesses equipped with an explicit risk management focus stand a far better chance of survival in today’s complex world. By embedding risk management in the purchasing process, taking a collaborative approach and forging new partnerships, companies can create resilient and robust supply networks.
As well as mitigating risk, the new tools and techniques of supply chain risk management bring benefits. Resilient supply chains are flexible so companies can seize opportunities when they arise; delivering when competitors can’t or scaling up production and delivery when market demand increases or raw material prices drop. At the same time, it enables them to reduce production if demand falls.
The InsightOn report finds that too many companies remain focused on efficiency and cost reduction, ignoring the inherent risks of this approach such as exposure to disruption. Companies in many industries keep inventories and buffer stocks as low as possible to cut overheads, even though the slightest disruption to the supply chain could result in a global production shutdown. A resilient supply chain, however, could safely hold up to 14 percent less buffer stocks and remain disruption proof.