Thursday, 21 June 2012
Supply chain risk key concern of European manufacturing executives–survey
Supply chain risk management is a key concern of top executives at European manufacturers, according to a recent survey by KPMG. But the Audit, Tax, and Advisory firm warns that very few companies are fully managing the risk.
Managing supply chain risk is set to become more difficult as regulation, such as the Bribery Act in the UK, will only make it more difficult to assess third party risk going forward, the firm added.
Over one third (37%) of the senior manufacturing executives at European companies surveyed by KPMG said that risk, reliability and flexibility in their supply chains remains one of their biggest challenges.
David Higginson, Risk Consulting Director at KPMG said in KPMG’s 2012 Global Manufacturing Outlook: Fostering Growth through Innovation publication: “Supply chain risk management continues to be a key issue at board level for manufacturing companies and this survey confirms that many see and are already using near-shoring as a strategy to manage aspects of that risk.”
“However, in our experience, very few companies have a fully integrated supply chain risk management process addressing all elements of supply chain risk: supplier failure; continuity of supply; counterparty risk and regulatory risk,” he warned.
Near shoring brings manufacturing facilities closer to end markets. The majority of the 241 executives surveyed worldwide, including those from Europe, believe it to be either an ‘effective’ (43%) or ‘highly effective’ (18%) way of improving supply chain risk management.
In addition, just under half (46%) believe that the trend for near shoring will increase in the manufacturing sector over the next 12-24 months.
But regulatory developments are accelerating supply chain risks and must be addressed, warned KPMG.
“Regulatory risk in the supply chain is a key focus for many organisations in the manufacturing sector: with the implementation of the UK Bribery Act companies are focusing on the importance of assessing third parties for bribery and reputational risk,” explained Mr Higginson.
“Other aspects of regulation will require an in-depth understanding of the supply chain to manage risk, eg identifying potential sanctions breaches; and the forthcoming disclosure requirements for SEC registrants for conflict minerals under the Dodd Frank Act,” he added.
According to the survey the other major challenges facing manufacturers in Europe include uncertainty of demand (45%), followed by price volatility of key cost input (37%) and intense competition and pressure on prices (37%).
The survey also points to a renewed focus on innovation in the sector. Some 72% of global manufacturers say that the next wave of game-changing innovation is underway.
Stephen Cooper, KPMG’s UK head of manufacturing said: “After several years of focusing on cutting costs, many manufacturers realise that they have to invest in expanding their product and service offerings in order to remain competitive. Historically, periods of recession have been followed by growth but manufacturers don’t simply want to rely on that. Therefore they are taking risks and committing their resources to innovation that may be groundbreaking for the sector and rewarding in the long-term.”
The survey found that manufacturers worldwide are setting their eyes on the US to drive growth. The next ranked target is China, followed by India, Brazil and Germany.
The survey also reveals that business confidence among global manufacturing executives is high and 75% of respondents are optimistic about their business outlook for the next 12 to 24 months.
Participants in the survey came from companies with more than $1bn in annual revenue. Some 33% were from organisations with more than $10bn in revenue.
The companies were geographically split among Western Europe (29%), North America (23%), Asia-Pacific (28%), the Middle East and Africa (10%) and Latin America (10%).
Aysan Sinanlioglu is responsible for risk management at Dogus Holding AS, the Istanbul-based holding company parent of Dogus Group. The Group is involved in financial services, automotive, construction, media, tourism, real estate, energy and entertainment businesses. Ms Sinanlioglu, an experienced risk manager who has been in her position with Dogus for less than a full insurance renewal cycle, shares her perceptions of the state of risk management in Turkey and beyond.