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Supply chain disruption costs businesses €1m a year, says BCI report
Written by Deborah Ritchie
One in three organisations has experienced cumulative losses of over €1 million during the last year as a result of supply chain disruption. This is according to a report published today by the Business Continuity Institute.
Despite a decrease in the percentage of organisations that experienced at least one disruption (70% from 74%), those organisations suffered more of them, with the percentage of organisations that experienced at least eleven disruptions during the year increasing from 7% to 22%.
Authors of the Institute's latest report, published on the first day of its annual conference in London, believe the increased cost of disruption could be attributed to significant increases in the loss of productivity (68% up from 58% in 2015), cost of working (53% up from 39%) and damage to brand or reputation (38% up from 27%), all as a result of supply chain disruptions. 43% of organisations do not insure these losses meaning that they are bearing the full brunt of the cost themselves.
Senior research associate at the BCI and author of the report, Patrick Alcantara, said the study reinforces observations about the growing cost of supply chain disruptions and its negative impact on an organisation’s reputation. "More than ever, it is important to focus on supply chains, identify areas of risk, and deploy appropriate arrangements which increase resilience. Business continuity has an essential role to play in this. Our research abundantly shows how business continuity professionals, working with their supply chain counterparts, can build supply chain resilience and direct management efforts in this area,” he added.
The BCI's report also highlights the importance of senior management commitment when it comes to driving supply chain resilience and performance.
Global supply chain product leader at Zurich Insurance Group, Nick Wildgoose, said adequate supply chain resilience is a prerequisite for improving organisational performance. “You need senior management support to achieve this, in terms of breaking down the organisational silos and providing appropriate resources. The businesses that invested in this area have recognised there is a compelling business case to do this and are seeing the benefits.”
Supply chain visibility remains one of the biggest challenges to organisations with the data showing increased dependencies between suppliers and downstream organisations, reinforcing the need for organisations to understand their supply chain in more depth, identify key suppliers and improve reporting of disruptions.
Supply chain disruption: Report findings (Source: Business Continuity Institute)
• 41% of disruptions occur with the immediate supplier, compared to 50% last year, however 40% of respondents report that they do not analyse the source of disruption.
• The percentage of organisations reporting losses in excess of €1 million from a single incident remains static at 9%.
• Unplanned IT and telecommunications outage remains the top cause of disruption with loss of talent/skills moving up to second place from sixth in 2015. The remaining members of the top five causes of disruption were outsourcing failure, transport network disruption and cyber attack or data breach.
• The top five consequences of disruption are loss of productivity, increased cost of working, customer complaints received, service outcome impaired and damage to reputation/brand.
• Only a little over a quarter of respondents (27%) report high top management commitment to supply chain resilience, a worrying decrease from 33% last year.
• Just under three quarters of respondents (73%) report having business continuity arrangements in place to deal with supply chain disruptions.