Study finds: Broad majority of companies lack integrated risk management

11th Hermes-barometer

Unsplash/Reproductive Health Supplies Coalition

Even though a significant increase of risk is expected, only four out of ten companies operate an integrated risk management system within their supply chain. This is one of the key findings of the 11th Hermes Barometer. The survey “Risk Prevention and Supply Reliability within the Supply Chain” was conducted by Hermes Germany among 200 logistics decision-makers from German companies.

Compared to the results of the 2015 Barometer, there are only marginal deviations regarding the implementation of an integrated supply chain risk management system: According to the current Hermes Barometer, 39 percent of companies presently take an holistic approach to their supply chain. Four years ago, 37 percent of respondents were already doing so.

Increasing risk environment

At the same time, every other company (50 percent) assumes that their procurement management will notice a significant aggravation of risk in the future. In 2015, only 41 percent of logistics decision-makers agreed with this statement. Further, 64 percent of respondents believe that the risks posed by hacker attacks or computer viruses are increasing (plus 15 percent compared to 2015). “It is incomprehensible why so few companies pursue holistic risk prevention and management,” says Jan Bierewirtz, CCO and Division Manager Commercial at Hermes International, a division of Hermes Germany. With the increasing complexity of supply chains, one would have expected a larger number of companies already taking action, Bierewirtz explains.

Individual measures to minimize risk

Nevertheless, companies are seeming to prepare – with individual measures: 57 percent of the companies surveyed have drawn up an emergency plan for potential risks with a high probability of occurrence. In addition, one in two companies has an early warning system that enables an immediate reaction to possible dangers within the supply chain. Further, a large number of companies use various methods and measures to identify risks within the supply chain in advance: 70 percent of respondents rely oncredit checks, for example. Other popular tools for risk analysis include online research (61 percent) or market and competition analysis (60 percent). Special risk analysis software, which is only used by 35 percent of survey participants, appears to be less popular. The same applies to scenario technology or gap analysis, which is used by approximately one fifth of respondents (22 percent). “We can see that companies are working on securing their supply chain. Compared to 2014, the use of individual methods has increased in all areas,” Bierewirtz comments on the results.

Reasons for prevention

According to the Hermes Barometer, very important reasons for risk prevention within the supply chain include the guarantee of a high product quality (74 percent), compliance with legal guidelines (63 percent) or maintaining the security of supply (57 percent). Less important reasons were the compliance with social and ethical or ecological standards of the suppliers (37 percent) or the reduction of price risks regarding raw material (27 percent). “Companies should bear in mind that disruptions or even interruptions in the supply chain can also severely affect supply chain partners. This entails unpleasant consequences for all parties involved. Companies are well advised to optimize their supply chain risk management, especially regarding the growing risk potential”, warns Bierewirtz.

Logistics service provider as problem solver

According to the decision-makers surveyed, logistics service providers are the primary choice when it comes to outsourcing risk management within the supply chain. They are even more popular than consulting firms specializing in risk management. According to the survey participants, more than half of the respondents (56 percent) systematically involve their logistics service providers in risk prevention strategies and consult with them on a regular basis.

Logistics experts such as Hermes Germany support companies in identifying and utilizing optimization potential along the supply chain. As part of a holistic analysis, existing processes are examined and recommendations for action and concrete measures for an increasing efficiency within the supply chain are given.

 

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