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McGrathNicol warns of underrated supply chain risks

Despite high confidence levels in their supply chain resilience, a stark disparity between perception and reality among Australian business leaders has been unveiled by McGrathNicol’s latest research. 

The Australian economy, characterized by increasing interdependence, has seen a notable decrease in apprehensions surrounding the fragility of supply chains, particularly as they faced heightened scrutiny during the pandemic. However, a fresh report from McGrathNicol Advisory, unveiled today, sheds light on a stark disparity between the confidence of Australian business leaders and their preparedness for forthcoming supply chain challenges.

In collaboration with YouGov, McGrathNicol conducted a survey involving 300 C-Suite executives and Board-level directors from Australian companies with 50 or more employees. The outcomes of the study reveal a notably high level of confidence among these business leaders, with a staggering 97 percent expressing varying degrees of assurance in their organization’s capability to navigate supply chain risks.

McGrathNicol suggests that this overarching confidence might be masking a critical underestimation of future risks, a narrow perception of the supply chain, and a misguided belief that issues like geopolitical tensions, cyber threats, trade disputes, and other potential risks will have an inconsequential impact on their organizations.

For instance, only 16 percent of Australian business leaders anticipate an escalated influence of geopolitical risks on their supply chains over the next year. Furthermore, despite consecutive years marked by high-profile cyber breaches, a striking 84 percent do not foresee a heightened threat from cyber risks to their supply chains in the coming year.

Matt Fehon, Head of Advisory at McGrathNicol Advisory, underscores the global interconnectedness of Australian businesses, emphasizing the profound impact that international events and conflicts can have on operations. He notes, “Geopolitical tensions or natural disasters are just as likely to shut down an essential offshore software development team or call centre as they are to disrupt physical supply chains like shipping lanes and ports. We believe this data shows that business leaders have not grasped the impact that global events such as US and Taiwanese elections, the Hamas-Israel conflict, and other regional disruptions, will have on their ability to do business.”

Despite business leaders’ high confidence in their ability to navigate future supply chain risks, a closer look at their risk management programs reveals a significant gap. While financial risks are adequately addressed (57 percent), other substantial concerns such as cyber risk (27 percent), counterparty risk (27 percent), geopolitical risk (26 percent), supply chain risk (26 percent), and personnel risk (25 percent) are less likely to be incorporated into their strategies.

Fehon emphasizes, “While business leaders are highly confident in their organization’s approach to managing supply chain risks, it’s clear that this is being driven by a narrow perception of what the supply chain is, and what risks they need to prepare for. Modern supply chains are more than just ships and trucks. We need to update the definition of a supply chain before we can say confidently that we’re able to manage these risks effectively.”

Furthermore, despite a high level of awareness among Australian business leaders (92 percent) about the Security of Critical Infrastructure (SOCI) Act, which necessitates comprehensive supply chain risk management plans, a concerning 27 percent admit that their plans haven’t been updated in the past two years.

This is in part attributed to various challenges, including limited transparency and difficulty in obtaining relevant supply chain data (34 percent), an assumption that procurement teams, logistics teams, or suppliers will safeguard the organization’s interests (33 percent), apathy (31 percent), and a lack of awareness and understanding due to limited or no expertise in supply chain management (30 percent).

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