Cost of supply chain disruptions on the rise - report

The cost of supply chain disruptions is on the rise, according to a new report out of the Business Continuity Institute.

Some 34% of organisations experienced losses of more than €1m ($1.08m) during the past year as a result of supply chain disruptions. This was up from just 14% last year.

The report, sponsored by Zurich, also found that 70% of companies had experienced at least one disruption over the past 12 months. This dropped from 74% last year.

But organisations suffered more disruptions this year, with the percentage of organisations experiencing at least 11 disruptions increasing from 7% to 22%.

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.

The research found 43% of organisations do not insure these losses, meaning that they are bearing the full brunt of the cost themselves.

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 outsourcer failure, transport network disruption and cyber-attack/data breach.

One of the reasons for the increase in disruptions for many companies may be a lack of adequate visibility over their supply chain, with 66% of companies maintaining adequate visibility this year, compared to 72% last year.

The BCI said that ensuring supply chain visibility remains one of the biggest challenges to companies with the data showing increased dependencies between suppliers and downstream organisations, reinforcing the need for corporates to understand their supply chain in more depth, identify key suppliers and improve reporting of disruptions.

Report author Patrick Alcantara said: “Our 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.”

Zurich Insurance global supply chain product leader Nick Wildgoose added: “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.”