Industry Challenges
Are supply chain risks impacting your bottom line?
Potential risks exist at virtually every point along the supply chain from raw materials coming in from suppliers all the way until your products reach the end user. In fact, most companies today are struggling to deal with several key areas of risk such as:
“The explosive growth rate of new technology and access to global markets has accelerated the adoption of leading business practices to a rate not previously seen in history. Yet this overly aggressive pursuit of efficiency could destroy a company.” In a study of 25 leading companies with combined revenues of more than $1.5 trillion and a collective market cap of $2.3 trillion, Deloitte Consulting found that not one of these companies, despite having already deployed a supply chain management system, was fully prepared for the new genre of systemic risk that exists today.
Supply Chain’s Last Straw: A vicious Cycle of Risk, Deloitte and Touche
What’s really driving these supply chain risks?
Cost cutting techniques and practices. Back in the early 1990s, company managers turned their supply chains into well-oiled machines incorporating just-in-time and lean manufacturing techniques, reducing costs from the processes by which they got electronic components to the right places. More recently global outsourcing was added to the list of cost-saving supply chain solutions. However, these practices brought about considerable risks from supplier interruptions, counterfeits, gray market sales, and demand for a supply chain risk management solution.
More demanding customers leading to demand fluctuations, shorter product lifecycles, greater product variety and price sensitivity have pushed manufacturers to seek new global markets, to outsource their production and find new ways to have a more lean supply chain. According to a Deloitte report on Supply Chain Risk Management there is a trend toward concentration and globalization, resulting in downsizing and outsourcing production locations and/or sales outlets, with an emphasis on greater efficiency and economies of scale. All of these activities are making manufacturers more dependent on the organizations in their supply chains. And with suppliers typically in low cost regions throughout the world, the supply chain becomes more vulnerable.
Globalization and outsourcing to low cost regions such as China and India have made the situation significantly more challenging. In their Supply Chain Risk Management report, Deloitte also reports that, companies are struggling with what to do if a major supplier interruption occurs and how to combat significant fluctuations in component pricing.
Lean manufacturing techniques are another trend that can lead to potential supply chain risks. Should a disruption and sudden demand fluctuation occur, a manufacturer who has incorporated a variety of lean techniques would likely not have inventory on hand to avoid a production shutdown.
According to a research report by Mark Hillman, AMR Research analyst, “As firms race to incorporate global sourcing strategies, integrate contract manufacturing relationships and deal with the increasing number of events that can cause supply chain disruption, managing risk in the supply network is an increasingly critical need. At stake are billions of dollars of stock market capitalization, market share losses from failed produced launches, or even the possibility of going out of business because of an inadequate understanding of the magnitude of supply chain risks.”