Supply Chain Security Continues to Plague European Companies

An in-depth Risk Management study, conducted by leading strategic procurement and supply chain management consultancy, KGM Strategy, part of the BCG network, has found:

• Securing supply tops the list (93%) as the greatest perceived risk to companies by Procurement Managers and Managing Directors – with nine in ten already affected
• Procurement price rises was the second greatest risk (73%) followed by risk of supplier failures (39%)
• 85% of companies continue to see a large/very large impact on purchasing prices due to Covid-19, with 71% expecting cost pressure
• Reducing their carbon footprint was the largest ESG challenge for business (70%) followed by environmental damage risk (51%) and labour rights (42%)

Supply chain tops the charts

Supply chain risks continue to plague companies across Europe, with the vast majority of businesses (90%) not receiving all of the preliminary products they had ordered in the last six months.

When asked about their top priorities, business and procurement leaders saw supply risks as their top priority, up 15% in the previous year, with Procurement Price Risks second, but up by 46% on the previous year.

Thibault Lecat, Managing Director at KGM Strategy UK, comments: “Managing supply security is the main conversation happening in boardrooms across the UK and Europe. With more than 90% of companies already impacted, now is the time for root and branch reform to de-risk supply chains. Digital solutions and decarbonisation should feature heavily in these discussions, to future proof businesses from potential disruptions. Companies should also be vigilant and scrutinise the price demands of their suppliers; not every rise is entirely justified.”

So-called ‘cost break downs’, in which an upstream product is broken down into its individual parts and these are then evaluated, can provide indications. In order to slow down the upward price spiral, potential savings should be specifically sought and exploited, for example through leaner processes or in non-strategic goods – allowing price increases to be balanced out and competitiveness increased.

Managing the risk

In spite of the supply chain challenges and increasing risk across energy prices and inflationary issues, the number of those practicing strategic risk management and controlling it with digital tools has not increased year on year. In the future, however, the business and procurement leaders want to tackle the issue more proactively, with 89% expecting risk management to play a more important role in the future.

Lecat continues: “We know from our customers that the constantly emerging delivery problems tied up a lot of time and resources. This left no room for planning and further development and while there is the intention to tackle the issue, the onset of the Ukraine war and resulting impact once again place extreme strain on the procurement teams.”

Despite the significant geopolitical and economic events dominating the agenda, Lecat strongly advises businesses to further expand proactive risk management and leverage digital solutions: “Investing in fire protection is always better than fighting fires.”

Reducing CO2 emissions is primary ESG risk

Decarbonisation continues to be the primary risk for businesses within the sustainability space. The commitment to reducing their carbon footprint was the most significant risk according to 70% of respondents, with 50% seeing environmental damage caused by production methods in the supply chain as a major risk.

Just 42% saw risks from compliance with employee rights and less than a third (30%) saw environmental damage due to raw material extraction as a risk.

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Ina Ullrich

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Study Design

83 procurement managers and managing directors, mostly from German-speaking countries and Great Britain, took part in the latest risk management study. Around half of them work in the chemical, consumer goods, automotive, and mechanical and plant engineering industries.