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Counting the Cost of Supply Chain Disruption

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Truck stuck in the snow (Photo credit: OregonDOT)

The latest in a series of yearly logistics surveys finds supply chain disruption a common challenge that many organizations are failing to remedy.

The fifth annual Zurich survey found that fully three quarters of managers don't believe that they have a complete handle on levels of disruption to their supply chain, while only 25% actually coordinate across their business to understand disturbances that do occur.

The latter only compounds the former, as individual or departmental preparedness can only go so far in dealing with an interruption that affects the entire organization.

Counting the Costs

The report goes on to put a price tag on the individual instances of supply chain disruption, with 70% costing less than 250,000 Euros (around $343,000). The worrying statistic comes in the 15% of interruptions that cost more than 1 million Euros (around $1.35 million), demonstrating the maximum potential risk that organizations open themselves up to in failing to review and address persistent disruption.

In some cases, such as natural disasters or civil unrest, it can be almost impossible to build in sufficient protection to mitigate such costs. Others, however, including telecoms outages or breaches of data, fall into a category in which it is much less acceptable to be caught unprepared. A lack of back-up systems or an emergency plan are issues that can be remedied ahead of time and result directly from the aforementioned 75% of organizations who are failing to review the potential for disruption.

A primary takeaway from the report should be that the potential costs of supply chain disruption warrant the investment in cross-departmental action groups tasked with mitigating the risks that their organization could face.

Planning for Supply Chain Disruption

Last month we wrote about building room for flexibility into your supply chain for 2014.

While preparing for the unexpected can be something of a shot in the dark, it shouldn't deter planners from trying to make the supply chain as adaptable as possible. The balance, of course, is between full efficiency and maintaining a little slack that offers increased time to react and reroute resources as necessary.

The Zurich report backs this up, showing that managers responsible for supply chain disruption issues must drive the change that the numbers show is required. The turn of the year provides an excellent opportunity to do so, setting new priorities and refocusing organizational attention on areas that could increasingly costly should they fail.

As the report states, its results "continue to indicate a passive approach to reviewing the likely effectiveness of supplier business-continuity arrangements.” That approach will need to become far more active if supply chains are to become more resistant to to damaging disturbances.