Wednesday, 7 August 2013

Supply Chain Risk Management Cost vs. Shareholder Value

Authored by Mickey North Rizza

In last week's blog post on supply chain risk management, we noted a study found supply chain disruptions equated to 30% lower shareholder returns and a similar study found margin erosion. In addition, the second study also noted that many companies do not implement supply chain risk management strategies because it is too costly. Yes, you read both sentences right — it is too costly to implement supply chain risk management strategies, yet supply chain disruptions equate to 30% lower shareholder returns and margin erosion. Isn’t the right mindset: it is too costly NOT to implement supply chain risk management strategies?

Businesses face risk issues every day from economic conditions, social and geopolitical events, market forces, competition, and natural disasters. It is preparedness to handle these risks that allows the business to tackle them and come out financially solvent. Value creation is critical in supply chain risk management strategy discussions; will a business decision create value or financial abilities or will it hurt the company. You be the judge; however, it appears to be a cut and dry decision in terms of a healthy business, value creation and overall shareholder value.


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