Supply chain failure and associated costs

Most businesses have many different risks to manage every day. So minimising exposure to these is crucial for business survival and success. For many procurement professionals, the risk management ‘game’ has new rules and a playing field that is complex and global. 

Supply Chain Concerns

According to Supply Risk & Compliance research conducted by Achilles in 2015, 40% of businesses say that their biggest risk through the procurement process is that the supplier will fail “to deliver in terms of quality, timeliness or cost”. This is consistent for all sizes of organisation and across all the sectors that were surveyed, with 75% of respondents putting this in their top-three risks to manage. There is an obvious and immediate impact on the business if the supply chain fails in terms of product quality, timing or service delivery.

Irrespective of sector, large companies are concerned about protecting their brand and reputation from damage caused by weak or high-risk links in the chain. Smaller companies have concerns closer to home and are focusing their energies on financial survival.

Nearly half (48%) of the companies surveyed were concerned about the financial failure of suppliers’ businesses and elevated this to the top-three risks they have to manage. In addition, 33% list the financial failure of their own business in their risk top three. In the construction industry, 30% of those surveyed put failure of their own business as the number-one risk. 


Costs of Supply Chain Failure

In the independent Supplier Risk & Compliance research project commissioned by Achilles in 2014, aggregated results from across all industries show that supply chain failures cost the manufacturing sector £58-million during 2013. That includes: the cost of suppliers failing to deliver on time; deliver the required service in terms of quality; financial failure of a supplier; effect of natural disasters and severe weather; damage to reputation due to a supplier; failure of a supplier to meet Health & Safety obligations; industrial action; exposure to litigation due to a supplier; and acts of terrorism or conflict.

The most common cause of failure is a supplier failing to deliver on time, experienced by 64% of those surveyed. Just over half (53%) experienced an issue with suppliers failing to deliver products of the required quality; 34% of whom incurred a cost. And ranking third in the most common causes of failure is a supplier going bust. One third (37%) experienced the financial failure of a supplier, with 44% paying a financial price.


Contributed by:Andrew Hillman is Managing Director of Bespoke and Publishing Editor of Bespoke Procurement Bulletin