Increase in Global Sourcing Expected Despite Supply Chain Risks

Nearly two out of three financial executives expect global sourcing activities at their companies to increase during the next three years, a new study reports, even in the face of significant risks from extended supply chains.

The study, "Physical Risks to the Supply Chain: The View from Finance," focused on the threats to physical assets along the supply chain, including infrastructure breakdown, facilities and equipment failures. The study, commissioned by insurer FM Global and conducted by CFO Research Services, involved 169 senior financial executives from U.S. companies with revenues of $500 million to more than $20 billion.

Some 39% of the respondents say their company's current global sourcing strategies increase their exposure to these physical risks, and more than 40% confirm their company has experienced an unexpected physical disruption from internal facilities or equipment failures during the past several years that hurt their bottom line. Since 2003, 45% of the executives reported that they have fallen victim to natural disasters that negatively affected their financial performance.

While most executives say their companies are performing adequately in assessing supply chain risk, nearly 40% admit there is room for improvement. Steps they identified to minimize risks are:

  • Choose vendors carefully.
  • Be knowledgeable about one's suppliers and diversify them to reduce risk.
  • Be methodical about managing supply chain risk.

"Global sourcing can bring an abundance of new risks, but it also can be a great opportunity for companies to gain a competitive advantage," says Bret Ahnell, senior vice president, FM Global. "Businesses that develop supply chain resiliency not only protect themselves against supply chain interruption, but also potentially position themselves to capture market share from competitors that do not."

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