The majority of businesses in Europe, Middle East and Africa (EMEA) have been unable to protect their value chains against unforeseen events.
A study launched by Oracle, “Managing the Value Chain in Turbulent Times”, surveyed 677 senior decision makers in large organisations across nine regions in EMEA, to assess how businesses are currently managing their value chains. It examined major aspects of value chain management, including risk, managing information, innovation and sustainability.
The survey found that disruption has become endemic. Over the past 12 months, 63% of businesses across EMEA have reported that they have seen disruption to their value chain due to unpredictable events beyond their control, such as economic disruption (24%), adverse weather (19%) and bankruptcy of suppliers (16%).
In addition, the cost of disruption is high. Amongst those businesses that have experienced disruption in the last 12 months, it has taken 63 days on average to get back to normal operations following an incident. The cost to organisations has amounted to an average €520 000 per incident and includes costs associated with lost sales, lost customers, product recall and the work involved in having to rebuild the value chain.
Organisations, however, still have inadequacies in their risk assessment. Despite the disruption being caused to the value chain, 75% of organisations admitted that they have not performed a risk assessment on all elements of the chain, leaving them exposed to financial loss.
In fact, the study found that 58% of businesses which have not performed a comprehensive risk assessment have been affected by disruption, highlighting the impact this lack of preparation is having.
Compliance presents a challenge to large businesses in EMEA, according to the study, with 79% having to comply with at least one type of legislation and trade regulation that affects their value chain.
The research shows, however, that a significant proportion of companies are struggling to comply with these regulations, with 30% having failed to comply with at least one, which they are meant to adhere to during the last 12 months. Failure to comply with legislation can lead to financial penalties or, in extreme cases, punitive legal measures.
Businesses also struggle with communication and collaboration, with 82% of senior decision-makers stating that departments or groups in their organisation are generally bad at keeping them informed.
In addition, 85% of senior decision makers stated that departments/groups of people within their organisation struggle to provide timely data and information relating to products and services. This lack of communication presents a significant challenge when it comes to understanding and managing the value chain.
Technology could be a barrier to effective communication/collaboration. The study reveals that a poor communications infrastructure may be to blame for many of these communications issues, as 61% of businesses reported that internal communication and collaboration suffers due to data and/or technology problems.
In addition, 21% think they have incompatible technology and just over one in four (27%) believe their organisation has inadequate IT systems in place to deal with this. A further 56% stated that data and/or technology problems hinder external collaboration and communication.
“It is clear from the study that many large businesses across EMEA have yet to get to grips with their value chain,” says Dominic Regan, senior director: value chain execution at Oracle EMEA.
“The survey paints a picture whereby a lack of communication and collaboration, when combined with poor risk assessments and inadequate compliance measures, is putting businesses at risk of significant operational disruption and financial loss.
“The good news for businesses is that this state of affairs can certainly be remedied,” he adds. “By ensuring that all supply chain applications can work together, businesses can share information quickly and cost effectively across the entire business in a way that is both resilient and adaptable. The value chain allows businesses to keep their promises to their customers.
“It is a highly important asset and, as such, should be adequately managed and protected.”
Dr Cherry Taylor, MD of Dynamic Markets, adds: “The research demonstrates very clearly that consumers and businesses of all shapes and sizes are interconnected through their value chains. The fall out of incidents taking place in distant parts of the world can affect to customers both locally and globally. The complexity of these value chains is immense, as are the challenges for companies too.
“The research shows there is room for improvement in terms of functionality, and that the majority of value chains are not durable in the face of all too common incidences and that value chains are not especially forward looking in terms of opportunity and influence.”