Identifying the Factors for Successfully Managing Supply Chain Risks

By Sime Curkovic & Thomas Scannell

The decision to manage supply chain risks constitutes a major undertaking for most firms. In this study, Sime Curkovic and Thomas Scannell use data from 46 firms and SCM managers to identify which factors affect the decision to develop a system for managing supply chain risks, and explain how these factors can influence the level of success.

Factor 1. Corporate Strategy

Firms overwhelmingly agreed there is no obvious single application for managing supply chain risks on the market.  Most firms (61%) are only using existing SCM applications for managing risk.  In the absence of risk management applications, these firms are building risk considerations into traditional SCM applications (e.g., spend, contract, & inventory management, demand planning, benchmarking, building long-term partnerships, etc).  An additional 6% said they would like to implement a SCM risk application in 1-2 years, and another 13% said they are considering it.  This indicates that while specific supply chain risk applications do not exist, interest levels are very high (80%).  The following questions were also asked on 1 to 7 scale (strongly disagree to strongly agree):  1) Managing supply chain risk is an increasingly important initiative for our operations; and 2) Without a systematic analysis technique to assess risk, much can go wrong in a supply chain.  The means for both questions were well above 5.00 and had very small amounts of variance.  Again, interest and need levels for supply chain risk applications remains high.

18% of the firms said they will spend over $1M in services, technology, and personnel to support managing supply chain risks, while 7% actually plan on spending over $5M.  Another 52% said they plan on spending more modest amounts of less than $500,000.  30% would not answer the question because of its proprietary nature, but indicated a moderately large amount of spend was planned.  The manufacturing firms look very similar in their higher spending efforts with a focus on supplier failure, whereas the non-manufacturing firms indicate lower spending levels with a focus on logistics failures.

These questions were also asked on 1 to 7 scale (strongly disagree to strongly agree):  1) Our spending intentions for managing supply chain risks are very high (mean=3.37, var.=2.47); and 2) We do plan on investing nontrivial amounts in managing supply chain risks (mean=4.30, var.=3.77).  In this study, there was dedicated funding for managing supply chain risks and 86% indicated that such budgets will increase or stay the same.  However, only 42% will come from specific SCM departmental budgets and 60% indicated that SCM takes ownership of such investments.  Managing risks is just now reaching the core of traditional and mature SCM applications.

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.