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Zurich: Service Failures by Outsourcers Reach Top Three Causes of Supply Chain Disruption

Posted on 07 Nov 2012 by Neilson

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ZurichZurich Insurance Group (Zurich) today announced a newly published survey which reveals that outsourcing failure is now a significant cause of supply chain disruption.

Service issues attributed to outsourcing jumped to third place in the causes of supply chain disruption at 35%, up from 17% in 2011, highlighting the importance that outsourcing decisions have in supply chain resilience. It also showed that 73% of organisations recorded at least one supply chain disruption in 2012 with 39% of analysed disruption originating from below the immediate supplier.

532 organizations from across 68 countries and 14 industry sectors responded to the survey, which is supported by Zurich and conducted by the Business Continuity Institute (BCI).

Further findings include:

  • The leading cause of supply chain disruption is unplanned IT or telecom outages with 52% of organisations surveyed experiencing some or high impact disruption as a result, followed in second place by adverse weather, experienced by 48% of firms
  • Currency volatility rises to fourth place in this survey of disruption.  While not traditionally seen as a business continuity area, it shows that the business continuity thinking can be more widely applied
  • Disruption is also becoming more consequential –  financial costs are higher than in 2011 with one in five companies registering a single incident loss of more than €1 million
  • The UK leads the USA in considering supply chain disruption within continuity programmes with 75% doing so in the UK, but only 44% of US-based respondents

The survey report concludes that effectively managing supply chain continuity is critical not just because of the immediate costs of disruption, but also the longer term consequences to stakeholder confidence and reputation that may arise following a supply chain failure.

Nick Wildgoose, Global Supply Chain Product Manager at Zurich’s Global Corporate, commented: “The BCI Annual Survey has consistently shown that over 70% of respondents suffered significant supply chain disruptions. In the latest survey, the costs associated with just a single incident are in over 20% of cases in excess of 1m Euros rising to 100m Euros. It is therefore critical, especially in the current economic climate, that organisations invest the right amount in their supply chain due diligence and risk management treatment. This should include organisations setting out robust business continuity plans that include consideration of dependency on key suppliers and customers. These plans need to consider what should be needs to put in place prior to the disruption event taking place , what can be done while  it is in progress and the improvement lessons post the event. There are a number of encouraging aspects to the survey including the benefit that organisations have got out of carrying out joint business continuity exercises with their suppliers.”

Lyndon Bird FBCI, Technical Director at the BCI, commented: “The jump in disruption caused by outsourcer service failures underscores the importance of viewing service chains differently from traditional product supply chains when it comes to resilience planning – service chains are more complex, and can be harder to unwind or replace quickly when they fail.  In-house skills are also lost over time, so dependency on the outsourcer increases, and thirdly decisions to award contracts are often based on transferring a problem or cost savings, not necessarily the criteria for selecting a product vendor”.

The survey, which is supported also by the Chartered Institute of Purchasing & Supply and DHL Supply Chain, is in its fourth consecutive year.