Supply chain risks threaten the worlds biggest companies

Sept. 19, 2005
Financial executives at the some of the worlds biggest companies believe supply chain risks pose the top threat to companies revenue. At the same time,

Financial executives at the some of the world’s biggest companies believe supply chain risks pose the top threat to companies’ revenue. At the same time, close to half of those surveyed say risks associated with globalization and outsourcing are only a low priority or concern for their organizations, potentially leaving their supply chains vulnerable. That’s according to Harris Interactive and FM Global, who polled more than 600 financial executives, mostly at companies with $1 billion or more in annual revenue, in their study of business risk.

The study indicates that:

* The most prevailing emerging risk cited by companies worldwide is “governmental or regulatory,” outpacing even “competition,” which ranked second.

* North America-based companies are roughly twice as likely as their overseas counterparts to cite “insufficient time,” “inadequate personnel” and “insufficient budgets” as the biggest obstacles to addressing top risks. In North America, 25% of respondents say supply chain risks would cause a major disruption to their companies’ top revenue driver – those assets they are most concerned about protecting. This equals mechanical breakdown (12%), natural disaster (8%) and terrorism/sabotage (5%) put together

* On average, respondents indicate the majority of their risk management budgets are allocated to risk control (loss prevention) rather than risk transfer (buying insurance).

* Recent corporate governance reforms have increased companies’ focus on risk management either moderately to highly at 88% of North America-based companies surveyed, as well as at 78% of companies based overseas.

“With globalization and outsourcing stretching the supply chain and introducing new and never-before anticipated business challenges, the findings suggest many companies may want to ensure they are doing all they can to deter a disruption of any kind,” says Ruud Bosman, executive vice president, FM Global. “At the same time, it’s encouraging to see so many companies focusing on risk control rather than simply buying insurance to cover losses. The most progressive financial executives do not wait for a disruption to their businesses to demonstrate the value of investing in risk quality.”

Bosman adds, “Companies that manage their risks properly and communicate the effectiveness of such efforts to their many stakeholders will find they not only gain a competitive advantage, but also boost financial performance, enhance shareholder confidence and help protect the value their businesses create.”