Logistics and Supply Chain Management, 4th Edition

A survey

2

of over 3,000 senior executives undertaken by the consultancy company

McKinsey in 2006 reported that they believed their companies faced growing risk

to disruptions to their supply chains. However, the same survey found that in many

cases companies had inadequate processes in place for the management and

mitigation of that risk. Whilst most organisations recognise the need to regularly

assess their risk profile, that assessment has tended to be focused on broader

regulatory and financial risk issues rather than supply chain vulnerability.

It can be argued that in today’s volatile business environment the biggest risks

to business continuity lie in the wider supply chain.

Clearly, there are risks that are external to the supply chain and those that are

internal. External risks may arise from natural disasters, wars, terrorism and epi-

demics, or from government-imposed legal restrictions. Internal risks will be

described in more detail later in this chapter but essentially they refer to the risks

that arise as a result of how the supply chain is structured and managed. Whilst

external risk cannot be influenced by managerial actions, internal risk can.

Why are supply chains more vulnerable?

A study conducted by Cranfield University

3

for the UK government defines supply

chain vulnerability as:

an exposure to serious disturbance, arising from risks within the supply chain

as well as risks external to the supply chain.

The same study identified a number of reasons why modern supply chains have

become more vulnerable.

These factors are considered below in more depth.

A focus on efficiency rather than effectiveness

The prevailing business model of the closing decades of the twentieth century was

very much based upon the search for greater levels of efficiency in the supply chain.

Experience highlighted that there was an opportunity in many sectors of industry to

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

190

Average shareholder returns

–25

–48

–36 –24 –12 0 12 24 36 48 60–60

–20

–15

–10

–5

0

Trading day relative to announcement day

Figure 10.1 The impact of supply chain disruptions on shareholder value

Source: Singhal, V.R. and Hendricks, K., Supply Chain Management Review, January/Fenruary 2002