6 in 10 businesses experienced at least one supply chain disruption in Asia Pacific in 2016
One in four businesses exceed US$1 million in losses, but almost half of survey respondents in Asia Pacific did not insure their losses.
February 27, 2017
By Lim Guan Yu
Zurich Insurance has revealed the key Asia Pacific findings of the Business Continuity Institute (BCI) “Supply Chain Resilience Report 2016”. Despite six out of ten organisations experiencing at least one supply chain disruption during the past year, with one in four exceeding US$1 million in losses, the report found that almost half of survey respondents in Asia Pacific did not insure their losses.
Partnering with BCI for the eighth year, the annual report is regarded as one of the most authoritative benchmark reports in this business area. The key findings for Asia Pacific (APAC) this year are:
- IT/Telecom outages was named as the number one cause of supply chain disruption
- One in four organisations experienced cumulative losses of over US$1 million
- 46% of organisations do not insure their losses, meaning they bore the full brunt of the cost
- Only 30% of disruptions occur with an immediate supplier
- 48% responded that top management have made commitments to supply chain resilience
The results of 2017 report illustrate how companies which do not have the necessary business continuity arrangements in place put themselves at risk of suffering financial losses from supply chains disruption, which can have serious ramifications for a company’s balance sheet, share price and reputation. Among the consequences of supply chain disruption, organisations from across the globe cited loss of productivity (68 percent), increased cost of working (53 percent), customer complaints (40 percent), impaired service outcomes (40 percent), damage to brand reputation / image (38 percent) and loss of revenue (37 percent).
Increased globalisation, improved transport and logistics through to technological advancements, have enabled companies to source materials from virtually anywhere in the world. While this provides increased flexibility and cost savings, it can also result in complex supply chains that are highly interconnected, more exposed and difficult to manage. The top five causes of disruption in Asia Pacific were found to be IT/Telecom outages, adverse weather, transport network disruptions, cyber-attacks and data breaches, and outsourcer failures.
30 percent of disruptions occurred beyond the preliminary supplier of goods (the direct supplier) and almost 30 percent of disruptions occurred at tier 2 or lower in the supply chain, which makes it extremely difficult to establish exactly where an organisation lies within its suppliers’ priorities. Understanding these risks has become increasingly challenging, with some companies having thousands of suppliers.
Hassan Karim, technical underwriting manager, Zurich Asia Pacific, commented, “Effective supply chain risk management and a comprehensive risk assessment can present significant benefits to businesses. As an increasingly important driver of profit, organisations which have been able to invest in the necessary resources to start to push the boundaries of risk management in the supply chain have found that the benefits have far exceeded the investments they have had to make. Without such investment, the cost of disruptions could be devastating.”
The report also highlights how top management commitment is required to drive supply chain resilience and performance. Although there is an observable trend that senior management in Asia Pacific are increasingly prioritising supply chain resilience in comparison to other regions in the world, more than half the respondents still reported a lack of top management commitment when it comes to supply chain resilience.
“Supply chain risk often crosses many departments within an organisation due to the interconnected and far reaching scope of supply chain risk, therefore executive support is critical to not only secure the necessary resources required to focus on supply chain risk management but also to break down organisational ‘silos’ in order to optimise performance,” Karim added.
The 2016 Business Continuity Institute (BCI) Supply Chain Resilience Report, produced in association with Zurich, is one of the most comprehensive industry studies focusing on the origins, causes and consequences of supply chain disruption worldwide. The full report gathered responses from 64 countries, of which 13 are in the Asia Pacific region. Respondents were from a wide array of industries, such as financial and Insurance services, professional services, IT & communications, public administration & defences, manufacturing, retail & wholesale, transport & storage, energy & utility services. The study highlights the importance of the uptake of insurance, which helps build supply chain resilience.