Boston — January 5, 2007 — Adoption and spending on operational risk management will increase markedly in 2007, with nearly half of the firms in a recent in-depth field study planning to implement or evaluate technology for risk management in the next 12 to 24 months, according to a new report from technology consultancy AMR Research.
Risk management has emerged as a critical discipline due to the business need for global sourcing strategies, increasingly complex contract manufacturing relationships and the greater number of natural and political events that can disrupt the supply chain.
"As firms move to leaner operating models and leverage global sourcing models, uncertainty in both supply and demand is growing along with supply chain complexity," said Mark Hillman, research director at AMR. "As a result, the need to manage risk, specifically in supply chain, is on the rise."
In the AMR study, 46 percent of the firms surveyed said they had plans to assess or deploy technology for risk management within the next two years.
For firms in many industries, external events are largely responsible for the greater corporate focus on managing risk. The survey results reveal that supplier failure and continuity of supply is the number one risk factor for 28 percent of firms.
The Enron scandal and the emergence of Sarbanes-Oxley compliance, the 9/11 terrorist attack, SARS and avian flu threats, the Asian tsunami and Hurricanes Katrina and Rita, and high-profile business failures have forced companies to evaluate how well-prepared their organizations are to handle catastrophe and unplanned events. For other firms, strategic and execution risks are front of mind, such as hitting a launch window for a short lifecycle product.
Additional survey results include:
- 33 percent of firms say they have dedicated budget line items for supply chain risk management activities.
- 54 percent of firms plan to increase their budgets for risk management over the next 12 months. Of those firms, the average spending increase will be 17 percent year over year.
- The top areas of application spending to support supply chain risk management are sales and operations planning (S&OP), inventory optimization, business intelligence and supply chain analytics, and supply chain visibility and event management applications.