BME Sees Risk Prevention as a Weakness in Supply Chains

BME and riskmethods Publish Results of Joint Study ‘Supply Chain Risk Management – Challenges and Status Quo 2020’. It was found that only a few companies have an emergency plan for supply failures. Many companies only react when the disruption in the supply chain has already occurred.

(Eschborn) The risks in global markets and supplier networks continue to increase. Virtually every company is affected. However, very few have contingency plans in place to respond quickly to supply failures in case of emergency. This is the result of the study ‘Supply Chain Risk Management – Challenges and Status Quo 2020’, which was conducted for the third time by the Federal Association for Materials Management, Purchasing and Logistics (BME) and riskmethods, the market leader in supply chain risk management.

Sudden supply failures occur regularly: According to the survey, every second company reports up to five disruptions within a year that have affected business operations. This is an increase of 28 percent compared to the previous year. Only 14 percent of companies have been spared in the past twelve months. Nevertheless, only a quarter of respondents have defined emergency plans to be prepared for disruptions – even though the consequences of supply chain interruptions are severe. More than half of the respondents report revenue losses, productivity declines (+7 percent compared to the previous year), and increased operating costs (+8 percent).

Preparing for Shortages

“Purchasers, logisticians, and supply chain managers have had to deal with a variety of crises in recent years. The lockdowns due to the COVID-19 pandemic alone caused many supply chains around the globe to stall or even break. Therefore, it is essential to prepare as best as possible for future shortages and to significantly reduce or completely eliminate potential disruptions in the supply chain through proactive risk management,” emphasizes BME CEO Dr. Silvius Grobosch.

Clean Supply Chains Increasingly in Focus

Political risks remain the top threat. This is followed by supplier insolvency and cybersecurity risks, which have been mentioned significantly more frequently by 50 percent and 18 percent, respectively, compared to the last survey. Issues of sustainability and compliance are also more relevant than ever. Companies are facing stricter due diligence and liability rules, such as those proposed by the Supply Chain Act. More than half of the respondents fear severe and even existentially threatening damage to the company if social and ecological standards are not adhered to at the supplier levels, leading to reputational damage, revenue losses, or fines. The pandemic risk has been added to the list for the first time and ranks fifth.

Increasing Problems with Sub-Suppliers

One problem: Companies predominantly monitor their direct suppliers. However, interruptions are increasingly caused by sub-suppliers, as reported by 45 percent of respondents. Yet only 24 percent have the deeper supply levels on their radar, meaning three-quarters of companies do not know where they are most vulnerable.

Eight percent cannot even identify the source of the disruption. And only six percent quantify the financial consequences. This is surprising considering that one in five supply chain interruptions results in damages between a quarter and a million euros or more.

More than half (63 percent) of participants do not learn about problems with sub-suppliers in a timely manner or at all. “As a result, they are unable to take timely measures to reduce damage. This can lead to higher purchasing prices from alternative suppliers or the complete unavailability of components – both of which can be highly detrimental. Greater transparency across the entire supply network helps avoid financial damage and production outages,” explains Heiko Schwarz, Chief Revenue Officer and founder of riskmethods.

Lack of Risk Monitoring

Almost every second company (44 percent) only reacts when a disruption in the supply chain has already occurred. Risk monitoring primarily focuses on supplier analysis and evaluation. Indicators such as quality and performance (79 percent) as well as financial metrics and credit ratings (71 percent) are at the forefront. Early warning signs such as changes at the supplier or global country and location risks (e.g., natural disasters, strikes, fires, and explosions at sites or logistics hubs) are continuously monitored by less than half of the companies. Cyber risks are monitored by only twelve percent.

Modern Software Accelerates Threat Detection

Managing all these risks requires comprehensive risk management. Sixty-seven percent of purchasing and supply chain managers consider this desirable but often lack the necessary capacities and budgets, for example, for the use of modern technology and digitally supported analytics, without which the data collection and establishment of information flows necessary for continuous risk monitoring is not possible. Only eight percent of companies monitor their risks automatically, while 58 percent rely on manual methods using Excel spreadsheets.

“We see that digitization and process automation are currently at the top of the wish list for many companies. Modern technologies such as AI-based software accelerate threat detection, helping to respond early. Organizations that realign themselves here have a competitive advantage,” says risk expert Heiko Schwarz.

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