November 12, 2014
riskmethods / Munich, dated November 12, 2014 – eckseler-consult and riskmethods will for the first time present their new study “ROI of Supply Chain Risk Management” (SCRM) at the 49th BME Symposium on Procurement and Logistics. The study shows how individual potential that can be evaluated in monetary terms can be calculated for return on investment (ROI) for tool-based SCRM. This is based on savings through process efficiency and aspects related to the prevention and reduction of crisis costs. A key result of the study is that even within the first year damages in the amount of up to 7.5% of the revenue can be prevented by risk prevention alone.
Continuous reduction of added value and the shift to external, globally active supply networks affect companies of all sizes and in all sectors. Potential risks along the global supply chain are recognized at an early stage through monitoring and evaluation of risks using a tool-based SCRM solution. “In this way, companies can ensure production and supply capability, avoid revenue losses and avert damage to their image”, says Heiko Schwarz, Managing Director of riskmethods. “Tool-based SCRM can do even more, though, because it is also a tool capable of uncovering as yet unknown potential savings within the supply chain network. The ‘ROI of Supply Chain Risk Management’ study is a sound guideline in this regard”, adds Dr. Hugo Eckseler from eckseler-consult. The study shows how ROI of tool-based supply chain risk management is calculated. Moreover, it provides companies with tools that enable them to realize potential savings through professional SCRM.
Within the first year alone of acquiring a SCRM solution, budget neutrality is achieved through process efficiency savings. “The core component of SCRM is made up of identification and analysis of the risk situation of all suppliers, logistics hubs and affected countries in the supply chain”, says Schwarz. Determining the risks for all of these so-called risk objects presents an extra burden for staff if they do not have access to a tool that provides this data and these parameters. The work effort saved through obtaining information automatically is estimated to be around one hour per week/per employee, compared to manual information procurement. “The qualitative accuracy increases by around 85%,” says Schwarz.
According to the latest “Supply Chain Resilience” study performed by the Business Continuity Institute, 42% of supply chain disruptions stem from tiers below the immediate suppliers. Identifying these sub-suppliers by way of an integrated service and including them in risk monitoring would mean a decrease in work effort of 58% on average, in monetary terms. This data results in transparency, which in turn can lead to significant benefits regarding negotiations with insurance companies. According to recent Sourcing Innovation study results, companies able to demonstrate supply chain transparency can reduce business interruption insurance rates by up to 50%. In addition, bundling and central availability of fee-based data from third-party service providers in a SCRM solution, e.g. in respect of financial information, sanctions tests or natural catastrophe inquiries, result in six-digit volume discounts.
Furthermore, determining potential risks and alternative sourcing locations enhances risk prevention at the companies themselves, thereby increasing their performance. “Even in the first year, preventive measures mean that damages in the amount of up to 7.5% of the revenue are avoided, for example, through an early warning system in the case of a potential emergency”, says Eckseler. This allows companies to benefit from reaction time advantage of up to 1.5 days, which means they can initiate suitable measures at an earlier stage, and reduce the risk or even avert it. “This time advantage can prevent penalties due to production or revenue losses and protect companies from price increases as a result of raw material shortages”, explains Eckseler.
Supply chain risks are however not limited to measurable and material damages to business processes. Besides delivery capability, pricing and product quality, corporate image is an important factor in terms of how the company is perceived and its success. The good reputation of a company can quickly suffer damage if increased demands in the areas of sustainability and corporate social responsibility are not met or in the case of misconduct by suppliers. “Awareness of potential environmental hazards and verifiability of compliance with CSR requirements increase transparency”, adds Schwarz. “As a result, substantial damage to the image, which can have a long-term negative impact on corporate development, can be avoided.”
Dr. Hugo Eckseler has more than 30 years of experience in procurement and supply chain management in leading international companies, and is an active member of the Procurement Leaders Global Intelligence Network and the Bundesverband für Materialwirtschaft und Einkauf (Federal Association for Materials Management and Purchasing - BME). In 2010 he founded his own management consultancy. http://www.eckseler-consult.de
riskmethods provides companies with a comprehensive supply chain risk management solution for proactive monitoring and assessment of risks in the supply chain. An early warning system for potential risk ensures that proactive steps can be taken to avoid supply interruption, enforce compliance and protect the corporate image. The SaaS solution "Social Supply Risk Network", which was developed in Germany, combines state-of-the-art technology with cutting-edge provision of risk intelligence, to establish a leading standard in supply chain risk management www.riskmethods.net