BCI survey paints a mixed picture for supply chain risk management

The latest annual supply chain survey by the Business Continuity Institute (BCI) paints a mixed picture for organisations worldwide, with the number of disruptions down and non-reporting of such incidents at an all-time low. But it also finds a steady decline in top-level management commitment to supply chain risk and problems when it comes to tackling lower tier suppliers.

The findings suggest that organisations are slowly getting better at covering supply chain losses with insurance, however many cannot quantify financial damage or find insurance solutions that meet their needs.

The 11th BCI Supply Chain Resilience Report is based on a survey of more than 350 respondents from 65 countries and 15 sectors. Just under half were from Europe. Respondents held a variety of roles, with most working in business continuity (47.4%), followed by risk management (16.8%). They worked at companies of all sizes.

The good news from the survey is that fewer organisations experienced supply chain disruption this year than 2018 – down from 56.5% to 51.9%. In addition, the number of organisations experiencing five or more disruptions fell to 10% from 15% in 2018. The BCI said this trend is encouraging, particularly given the political and geopolitical issues weighing heavily on supply chains in 2019.

The majority of supply chain incidents incurred losses of more than €50,000 for organisations in 2019, with more than one in 20 suffering losses greater than €100m for their single largest disruption.

The average cumulative cost of supply chain disruptions in the past 12 months is €10.5m. More than one in ten (12.9%) organisations suffered losses of more than €1m. However, this has fallen from 34.0% in the last three years.

Interestingly, respondents said loss of productivity and customer complaints due to supply chain disruption are a bigger problem than the pure financial cost.

The survey also shows that non-reporting of supply chain disruptions is at an all-time low since the BCI started its yearly poll. Less than a quarter (23.3%) of respondents now say their organisation does not record, measure and report on supply chain disruptions. Despite this, coordinated reporting has dropped from 30% to 25%. The BCI described this as “disappointing”, given its research has shown increased focus on holistic organisational resilience during the past year.

The top five supply chain disruptions remain unchanged in the past year, with IT and telecommunications outages the primary cause, accounting for 44.1% of incidents in 2019. Next comes adverse weather on 35.1%, followed by cyberattacks and data breach (26.1%), loss of talent and skills (21.2%), and transport network disruption on 15.8%. Cyberattack and data breach is the top worry for the next 12 months, with 61.7% of respondents rating it their primary concern.

Organisations are seemingly getting better at managing direct suppliers, but are finding it increasingly difficult to tackle tier two and tier three risks. While incidents with immediate suppliers fell below 50% for the first time since 2016, those in tier two rose to 24.9% from 23.2% last year, and those occurring in tier three and beyond rose to 12.2% from 11% in 2018.

The BCI said this could be due to the fact that organisations are carrying out relatively limited due diligence deep into their supply chain. More than two thirds do not seek to understand the business continuity arrangements of suppliers in tier three and beyond, the survey shows.

In addition, many organisations (19.4%) are still failing to ask key suppliers if they have their own business continuity arrangements in place.

Meanwhile, the survey indicates a steady decline in top-level management commitment to supply chain risk. After a positive leap in 2017, such commitment has dropped for the second year running, to 25.6% – its lowest level in five years.

Medium commitment remains at a high level. However, zero commitment is also at its highest since 2014. Overall, this suggests top-level management is prioritising other parts of the business or delegating responsibility to other areas, said the BCI.

The survey also finds that organisations are slowly getting better at covering their losses with insurance and understanding options open to them. For example, organisations with insurance that only covers traditional physical damage events, or that are unaware of new non-damage supply chain solutions, dropped by just over a third compared with 2018, to 14.3%.

But the majority of respondents remain unable to quantify financial damage and many still cannot find insurance solutions that meet their needs.

Where the financial impact was quantified, nearly half (43.1%) of organisations covered none of their supply chain disruption losses through insurance, with small to mid-sized businesses the least likely to be insured. The remaining 56.9% of respondents reported partially insured losses, an increase of 8% on 2018.

The BCI said this suggests businesses are getting better at identifying potential disruptions and purchasing adequate insurance. However, still just 12.8% said their losses were fully covered.

A new question this year asked respondents if the insurance market provides sufficient solutions for their supply chain needs. Some 25.4% said the insurance market provides sufficient solutions but 15.9% said it did not. The majority of respondents (58.7%) said they were unsure. IT companies felt happiest with the cover available to them (40.9%), while the professional services sector was the least satisfied (11.8%).

Respondents were also asked what area of coverage they felt was missing. The BCI said a popular response was protection against cyberattacks and data breaches.

The report lists 20 top lessons for those helping to manage supply chain risk. The top five are:

  1. Ensure staff have a baseline understanding of business continuity and supply chains to put into their plans. This can be achieved by training sessions and focusing on specific areas of supply chain disruption.
  2. Ensure staff understand the diversity of key suppliers’ organisations, and where the risks are if there is an issue with the supply chain.
  3. Research the historical and political climate of key suppliers’ geographical locations.
  4. Build good working relationships with internal departments such as IT, and ensure their plans are incorporated.
  5. Build strong stakeholder relationships with key suppliers beyond tier two.

The survey’s findings paint a mixed picture for companies looking to mitigate supply chain risk – there are areas of progress and others of concern. But it seems clear that business continuity professionals and risk managers must pull together to ensure supply chain issues remain top of the agenda, are tackled throughout the value chain and suitable risk transfer solutions are developed.

You can download the BCI report via our website here.

*Commercial Risk is holding a one-day Supply Chain Risk Management conference in London on 25 November 2019. Find out more about the programme and book your space here