Few Companies Generate Returns of Over 100 Percent on Their Supply Chain Risk Management Investments

Very few companies (7 percent) are generating returns of over 100 percent on their supply chain risk management investments despite a majority of them seeing supply chain risk management as important, finds an Accenture study.

The study reveals that a majority (76 percent) of companies describe supply chain risk management as important or very important. Of the more than 1000 companies represented across 10 industries, 25 percent plan increased investments of at least 20 percent in supply chain risk management in the next two years.

While nearly all of the companies represented in the study receive a return on their investment (ROI) in risk management, only a handful generated returns exceeding 100 percent. Their secret? Three practices.

First, they made risk management a priority.

Sixty-one percent of the leaders as compared to 37 percent of other companies make risk management a strategic imperative and recognize the importance of capabilities that help them gain greater visibility and predictability across their supply chains.

The companies also centralized their responsibility for risk management.

Forty-three percent of leaders versus 32 percent of others had a central risk management function led by an executive in the C-suite or a vice president who oversees all of their risk management activities.

The third practice is investing aggressively in risk management with a specific focus on end-to-end supply chain visibility and analytics.

Leaders were nearly three times as likely to say they planned to boost their investment in risk management by 20 percent or more in the next two years.

Furthermore, nearly 70 percent of leaders said their investments will generate a return of at least 100 percent in the next two years as opposed to 4 percent of others.

“A centralized, top-down approach to supply chain risk management tends to generate the highest ROI on risk management,” said Mark H. Pearson, senior managing director, Accenture Strategy, Operations.

Pearson also noted that such a strong commitment to risk management “can contribute to stakeholder confidence in the fundamentals underpinning a company’s business.”

According to the study, the top three sources of risks identified by senior operations executives are information technology (39 percent), cost and pricing factors (39 percent) and the global economy (37 percent).

Natural disasters or unforeseen events, such as the Thai floods or the tsunami in Japan, were only cited by 17 percent of the respondents, making that the least frequently flagged risk. 

The areas most frequently exposed to those and other risks in the corporate supply chains are quality (45 percent), planning (39 percent), supply chain skills and talent (38 percent) and sourcing and procurement (37 percent), according to the executives.