Unpredictable demand is currently seen as the number one supply chain headache for European companies, and voted a bigger risk than scarcity of materials, wars, climate change and cyber, finds a survey supported by French risk management association Amrae.\r\n\r\nThe research also finds that many companies aren\u2019t prepared to withstand dramatic supply chain shocks. Almost two-thirds of respondents said that their organisations\u2019 supply chain risk management systems are not up to the task.\r\n\r\nMeanwhile, 54% said that they expect their supply chains to be increasingly relocated close to their home markets.\r\n\r\nDemand volatility emerged as the number one supply chain risk threatening European organisations in the annual ranking by consultancy KYU Associ\u00e9s. Up and down demand has become a critical risk for 56% of survey respondents.\r\n\r\nAccording to Thibaud Moulin, a partner at KYU, demand side problems are a consequence of volatile consumption in the post-pandemic economy.\r\n\r\nOn the one hand, the economic recovery in 2022 was stronger than many firms expected, forcing them to adapt to fast-growing consumption as quickly as they could.\r\n\r\n\u201cCompanies have had to refill their stocks, but demand fell below expectations in 2023,\u201d Moulin said in a press conference in Paris. \u201cSo in some sectors stock levels got very high.\u201d\r\n\r\nWith consumption lower than expected last year, as consumers adopted a more cautious approach in the face of inflation and rising interest rates, many companies now have to deal with too much stock in their warehouses.\r\n\r\nMoulin said that forecasting demand continues to be a hard task, and is complicated by the fact that companies are yet again having to adapt to further uncertainty within their supply chains.\r\n\r\nScarcity of products or raw materials and the geopolitical crises were voted the second and third biggest supply chain risks. Concern over both of those risks has, however, fallen since last year.\r\n\r\nHigher costs came fourth in the ranking and cyber fifth.\r\n\r\nThe top ten supply chain risks\r\n\r\n \tDemand volatility\r\n \tScarcity of products and raw materials\r\n \tGeopolitical crisis\r\n \tHigher costs\r\n \tCyberattacks\r\n \tLabour scarcity\r\n \tProduct quality\r\n \tWeather events\r\n \tLogistics disruptions\r\n \tCompliance and ESG\r\n\r\nSource: Barom\u00e8tre des Risques Supply Chain KYU (5th \u00e9dition)\r\n\r\nTo meet the 2022 consumer boom, and react to geopolitical and other pressures, many firms had to expand or diversify their supply chain, often relying on first-time business partners to meet their needs. This has seen product quality rise up the supply chain risk ranking.\r\n\r\n\u201cCompanies had to source new suppliers that sometimes did not have the levels of maturity of their predecessors,\u201d Moulin pointed out.\r\n\r\nProduct quality ranks seventh among the top ten risks identified by KYU, and is becoming increasingly critical to respondents.\r\n\r\nThe logistics of bringing commodities and goods by sea had fallen away as a key risk in the minds of supply chain experts polled. But Moulin stressed that this will be changing fast. With the war in the Middle East expanding towards disruption in the Red Sea, freight prices for trade with Asian markets rose sharply in January and are set to cause plenty of problems for European companies.\r\n\r\nThe survey highlights that each sector faces its own supply chain challenges. It found that 43% of supply chain crises in the automotive and aeronautic industries were caused by suppliers in the second tier or beyond. Among chemical companies, a third of the crises originated at their own production sites, compared to 29% at first tier suppliers, 31% at clients and only 7% among more distant partners.\r\n\r\nAgribusiness firms are more worried about the impact of climate change on their activities, while inflation continues to spook retailers.\r\n\r\nLogistic companies struggle to find workers, and the energy sector is concerned about the lack of skilled labour, according to the research.