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New survey from Business Continuity Institute reveals serious levels of supply chain failure

Research from 35 countries has revealed that over 70% of organisations recorded at least one supply chain disruption in 2010

A new survey from the Business Continuity Institute (BCI) has revealed serious levels of supply chain failure. The research from 35 countries shows that over 70% of organisations recorded at least one supply chain disruption in 2010. The survey shows that while awareness of supply chain risks is increasing, many businesses remain exposed to high levels of risk.

Sponsored by Zurich Insurance Company, the survey report concludes that outsourcing, in particular in IT and manufacturing, often ultimately reduces cost-benefits through greater exposure to supply chain disruption.

Further findings include:
Adverse weather was the main cause of disruption around the world, with 53% citing it – up from 29% last year.

Unplanned IT and telecommunication outages was the second most likely disruption and the failure of service provision by outsourcers was third, up to 35% from 20% in 2009. These incidents led to a loss of productivity for over half of businesses.

49% estimated that the cost to their business of supply chain incidents in the last 12 months was between €10,000 and €500,000, with a further 10% reporting a cost of €500,000 or more.

The average number of identified supply chain risks in the past 12 months was 5, with some organisations reporting over 52.

20% admitted they had suffered damage to their brand or reputation as a result of these disruptions.

Lyndon Bird FBCI, Technical Director at the BCI, commented: "The serious levels of supply chain disruption experienced by organisations around the world, coupled with the wide range of threats, underscores the business case for investment in business continuity management (BCM). Intelligently applying BCM to time sensitive supply chains is a vital risk mitigation technique and should especially underpin business decisions to extend or optimise supply chains. Furthermore, BCM provides peace of mind that suppliers will be able to support you when they are faced with a disruption, and that your organisation has workable plans in place to deal with and recover faster from supply chain disruption."

Nick Wildgoose, Supply Chain Proposition Manager at Zurich Global Corporate, commented: "This survey shows the need for companies to address the issue of supply chain risk. Supply chain disruptions are significant in number and companies must understand who their critical suppliers are, and look to protect them through the use of techniques such as Business Continuity Management. Companies that are tackling this as a cross functional Board level issue are seeing performance improvements through the reduced number and length of disruptions."

David Noble, Chief Executive Officer of the Chartered Institute of Purchasing & Supply (CIPS) added: "A report like this highlights what many of us have long suspected and I’m pleased that CIPS is involved to support the findings. Supply chain disruptions have a hugely negative impact on business and can wreak havoc, not just to the bottom line, but in terms of reputational damage. With winter approaching again, firms must be prepared and develop risk mitigation strategies urgently. Time spent wisely now will reap benefits later."

Further findings include:
50% have tried to optimise their businesses through outsourcing, consolidating suppliers, adopting Just-In-Time (JIT), or lean manufacturing techniques.

Where businesses have shifted production to low cost countries they are significantly more likely to experience supply chain disruptions, with 83% experiencing disruption. The main causes were transport networks and supplier insolvency.

Only 7% had been fully successful in ensuring suppliers adopted business continuity management (BCM) practices to meet their needs, with nearly a quarter not taking this step. Even when suppliers were regarded as key to their business, nearly half of respondents had not checked or validated their supplier’s business continuity plans.

24 hours is the typical period within which businesses look to recover critical activities, since sustained disruption beyond this period will cause significant economic and service delivery problems in many sectors. Very few organisations plan for disruption lasting longer than one week.

Although only a number of organisations faced sustainability disruption issues – defined in the report as environmental, health and safety or business ethics – those exposed to such risks fared badly when problems did arise, with much higher levels of adverse media coverage and brand damage with 37% admitting that they had suffered damage to their brand or reputation.

Note to the survey: respondents were from 35 countries and 15 industry sectors, with the majority of respondents outside the UK.

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