Tuesday 30 July 2013

Supply Chain Disruptions = 30% Lower Shareholder Returns

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.

In a recent survey from Deloitte of 600 global supply chain executives, 45 percent of respondents feel their risk management programs are only somewhat effective or not effective at all.  Executives noted supply chain disruptions have become more costly over the last three years, disruption frequency has increased and this increase has 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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