Tuesday, 30 July 2013

Supply Chain Disruptions = 30% lower shareholder returns

Authored by Mickey North Rizza

In the spring of 2005, the Production and Operations Management Journal published an article, “An Empirical Analysis of the Effect of Supply Chain Disruptions on Long-Run Stock Price Performance and Equity Risk of the Firm.” The study found companies have experienced 30% lower shareholder returns compared to their peers in the wake of a publicly announced supply chain disruption.

Last year a survey from Deloitte of 600 global supply chain executives, 45 percent of respondents felt their risk management programs were only somewhat effective or not effective at all. Executives noted supply chain disruptions had become more costly over the last three years, disruption frequency had increased and this increase had cascaded into negative outcomes such as sudden demand change and margin erosion.

Think about the statistics stated: 30% lower shareholder returns, margin erosion and sudden shifts in demand. A good cost reduction and containment program can improve your margins and increase shareholder returns, but it can all go away with one supply chain disruption. This is a recipe for impending disaster if you are not prepared with an integrated Supply Chain Risk Management Program.


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