Airmic 2013: Companies finding it harder to control supply chains

Companies are finding it harder to control their supply chains, despite the cost of failure being higher than ever, according to risk management association Airmic.

Speaking at the launch of a report on supply chain failure, Airmic technical director Paul Hopkin said: “The relentless pressure to cut prices has led to the creation of supply chains of mind-boggling complexity and business models that no one properly understands. When you consider the speed with which information travels, boards should not be surprised when public relations disasters such as the horsemeat scandal take place.”

The report, Supply Chain Failures: A study of the nature, causes and complexity of supply chain disruptions, found that businesses were often not able to protect their supply chains, that failures had become common and that many firms were ill-prepared to respond to them.

Airmic found seven factors that were often present when supply chains went wrong:

Off-shoring Firms now have an international network of suppliers and service providers, which are nearly impossible to monitor well  

Increasing complexity Firms may know their suppliers, but not those further down the chain. It is common for suppliers to sub-contract without informing their customers.

Cost pressures Contractors feel under so much pressure to cut production costs that they compromise on quality, ethics and corporate responsibility. 

Geographic clustering The Japanese tsunami of 2011 highlighted the fact that many manufacturers had their main and back-up suppliers located in the same areas as each other.

Modern communication News travels so fast and is amplified by social media, so bad news can wreck a reputation before there is time to react.

Modern production methods ‘Just in time’ production has increased vulnerability and reduced the time taken to recover from supply chain failure.

Increasing  dependency The need to acquire components from many different sources increases vulnerability to supply chain failure. Boeing’s commercial arm, for example, handles more than 750 million aircraft parts a year from 1,200 companies operating 5,400 factories.