Top 10 Supply Chain Risks for 2016

Not only the changeable risk ranking, is the more serious loss also haunting them. The reported loss of income from the top 10 risks has increased 14%, from 28% in 2011 to 42% in 2013. However, risk readiness dropped 7%, down to 59% from 66%. I think difficult risk prediction is a major factor cooling passion.

 

The AON survey targets 1415 respondents in a wide range of industry sectors, encompassing small, medium and large companies in 70 countries from all regions of the world. So its 2016 prediction could make significant impact on different companies in supply chain management in next three years.

 

The following form is the comparison of top ten risks in 2013 and projected 2016, respectively.

 

 

Via the comparison, we find there is no great change in top ten supply chain risks, excepting weather/natural disasters, which will be explained later. Since 2009, economic slowdown/slow recovery maintains the number one threat. The European debit crisis, gloomy growth forecast in China and India, the modest growth in the US as well as high unemployment rate disappoints investors. Even if there is improvement, it is too small to raise companies' confidence.

 

In addition, the US Government Shutdown event enlarges the shadow over economic recovery. “It is quite clear that the economic turmoil and the increasing focus on compliance / control / legislation have had an impact on more “classic” exposures such as business interruption. This risk will be pushed down on the “importance ladder” three years out,” said Maths Stanser, Chief Commercial Officer at Aon Risk Solutions.  

 

Regulatory/legislative changes play an important role in market position, maybe only after customer needs. This influence is especially obvious in the rising LED industry, smart grid and other energy saving fields. “Non-compliance with regulations could result in loss of markets, reputation and customers — severe consequences that could stretch far beyond any direct penalty imposed by enforcement agencies.”

 

Increasing competition ranking the third again is not a surprise for most respondents. For any industries, fiercer the competition is, lower market shares and profit manufacturers get. At present, dampened by weak economic performance, consumers reduce their spending, even on smartphones and tablets, which boosts the prosperity of low-end models. In front of companies is “a smaller base of clients with decreased spending power”, so the fourth risk stand out.

 

Failure to innovate/meet customer needs is the first uplifting position, jumping from number six to number four. Weak economy requires companies to create a smartphone-like miracle; increasing competition poses requirements for innovation and product differentiation to cater for customers, to survive and thrive. Aon suggests paying attention to innovation, speed, and feasibility.

 

Talent shortage has been a problem for long time. “Talent is a scarce commodity, and with the economic recovery under way, competition for talent can become fierce.” Failure to attract or retain top talent would have an impact on a company’s product innovation, competitiveness, development outlook…, causing an evil cycle. Have you prepared “a formal mechanism in place to evaluate the engagement levels, develop robust action planning processes and put in place comprehensive communication plans to target specific areas of engagement risk?”

 

Political risk / uncertainties increase its position from 10 to 6. The contributors undoubtedly include rising political conflicts in Asia, the Middle East and Africa, and political instabilities in Latin America and other emerging markets.

 

Commodity price companies leaders currently concerns most should be crude oil and natural gas, due to the political turmoil in Middle East and North Africa. Other raw material for electronic products also can not be ignored. Commodity price rising usually means low profit.

 

An unexpected fall in ranking is damage to reputation/brand from number four to number eight. “In fact, increased media and regulatory scrutiny, with a 24-hour news cycle fueled by social media is making it more imperative for companies to monitor crises that could directly impact their brand.”For customers, their information to a company is tiny. When choosing products, they concern more on the brand event exposed by social media. This is why the comment on e-commerce platform is growingly weighting more. For those consumer security related electronics products, damage to reputation is a fatal risk.

 

Now, let’s come to the new face-weather/natural disasters. I bet most companies still keep the onslaught brought by Thailand Flood, Japanese Earthquake and Superstorm Sandy in the fresh in their mind. Weather/natural disasters move up from number 16 to 9. On one hand, this risk is unpredicted; on the other hand, it could wreak havoc on all supply chains-manufacturing, logistics, transportation.

 

The last one is cash flow / liquidity risk. There is evidence that European debit crisis has trickled into North America and Latin America, adding burdens to global economic situation. More companies worry about capital outflow and currency appreciation.