Outsourcing Failures Now in Top 3 as Causes of Supply Chain Disruption

November 8, 2012

According to a survey of 532 organizations from across 68 countries and 14 industry sectors, conducted by the Business Continuity Institute (BCI), supported by the Zurich Insurance Group. “outsourcing failure is now a significant cause of supply chain disruption.”

In a bulletin on its web site Zurich said: “Service issues attributed to outsourcing jumped to third place in the causes of supply chain disruption at 35 percent, up from 17 percent in 2011, highlighting the importance that outsourcing decisions have in supply chain resilience. It also showed that 73 percent of organizations recorded at least one supply chain disruption in 2012 with 39 percent of analyzed disruption originating from below the immediate supplier.”

Other findings and conclusions from the survey include the following:
– The leading cause of supply chain disruption is unplanned IT or telecom outages with 52 percent of organizations surveyed experiencing some or high impact disruption as a result, followed in second place by adverse weather, experienced by 48 percent of firms

– Currency volatility rises to fourth place in this survey of disruption. While not traditionally seen as a business continuity area, it shows that the business continuity thinking can be more widely applied

– Disruption is also becoming more consequential – financial costs are higher than in 2011 with one in five companies registering a single incident loss of more than €1 million [$1.277 million]

– The UK leads the USA in considering supply chain disruption within continuity programs with 75 percent doing so in the UK, but only 44 percent of US-based respondents

The survey report concluded that “effectively managing supply chain continuity is critical not just because of the immediate costs of disruption, but also the longer term consequences to stakeholder confidence and reputation that may arise following a supply chain failure.”

Nick Wildgoose, Global Supply Chain Product Manager at Zurich’s Global Corporate, commented: “The BCI Annual Survey has consistently shown that over 70 percent of respondents suffered significant supply chain disruptions. In the latest survey, the costs associated with just a single incident are in over 20 percent of cases in excess of €1 million rising to €100 million [$122.7 million].

“It is therefore critical, especially in the current economic climate, that organizations invest the right amount in their supply chain due diligence and risk management treatment. This should include organizations setting out robust business continuity plans that include consideration of dependency on key suppliers and customers.

“These plans need to consider what should be needs to put in place prior to the disruption event taking place , what can be done while it is in progress and the improvement lessons post the event. There are a number of encouraging aspects to the survey including the benefit that organizations have got out of carrying out joint business continuity exercises with their suppliers.”

Lyndon Bird FBCI, Technical Director at the BCI, pointed out that the “jump in disruption caused by outsourcer service failures underscores the importance of viewing service chains differently from traditional product supply chains when it comes to resilience planning – service chains are more complex, and can be harder to unwind or replace quickly when they fail.

“In-house skills are also lost over time, so dependency on the outsourcer increases, and thirdly decisions to award contracts are often based on transferring a problem or cost savings, not necessarily the criteria for selecting a product vendor”.

Source: Zurich Insurance

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Latest Comments

  • April 24, 2013 at 10:51 am
    Austin says:
    With the string of recent disasters, having a responsive and resilient supply chain is more important than ever. While inventory and warehouse management is needed in a disast... read more
  • April 24, 2013 at 10:13 am
    Austin says:
    I agree with the article in that companies fail to adequately account for risk when making outsourcing decisions. I think a major reason for this is that many procurement prof... read more
  • November 9, 2012 at 3:23 pm
    Interesting comment, Seth says:
    Although it sounds like most of these people have not had good experiences by dealing with outsourcing. Would you not be intimidated by someone else handling (screwing up)part... read more
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