To avoid passing along price increases to consumers,

many companies are searching for further efficiencies

in their supply chains. This is a drive that presents

both opportunities and risks.

T
he growing reliance by US businesses on suppliers and
sub-suppliers around the world has delivered on its
promise of efficiencies and cost savings.

Yet every day, companies are being forced to recall products, delay launches, and answer tough questions from regulators and consumers. Achieving supply chain integrity—which we define as balancing operational objectives with reputational risks—is a more complicated puzzle than ever.

But solving it has become a business imperative. Today’s supply chains are stressed because they must deliver the right product at the right place and time while responding to changing stakeholder demands around issues such as environment, quality, and safety.

A few leading companies now rightly view the integrity of their supply chain as a source of competitive advantage. But even these companies are finding that today’s tough economic climate is a barrier to modifying the traditional role of the supply chain as primarily a reliable source of cost savings.

Anecdotal evidence suggests, but cannot prove, that companies that maintain the integrity of their supply chains are rewarded by stakeholders. It can, however, be proven that those failing to do so are severely punished.

PricewaterhouseCoopers’ analysis of 600 companies that experienced supply chain disruptions shows that their average shareholder value plummeted when compared to their peers. Their stock prices experienced greater volatility, and they

suffered sharp declines in return on sales and return on assets.

For a vast majority of companies, the effects of the disruptions were still apparent a year after they were announced.

Clearly, then, supply chain is not simply a system that delivers the final product or service to the end customer. It is also an expression of brand values. That is why companies must continuously balance operational objectives with reputational ones.

This is the view of global businesses that have designed their supply chains to support organizational objectives, instead of simply wringing out costs.

Senior executives in these companies have a shared understanding of how supply chain processes, risks, and transformational opportunities affect corporate goals. They are focusing less on historical data and more on understanding the evolving supply chain environment, and its impact on their future. They understand that turbulence is a given in today’s world, but integrity will be their insurance against financial loss from mishaps as well as a foundation for growth.

BUCK STOPS WITH BRAND OWNER

In some instances, companies in our analysis blamed suppliers for disruptions. But many realize that finger-pointing is not a winning strategy.

Almost 40 percent of companies in our analysis took direct responsibility for failures. These companies understand that consumers, regulators, and the global investment community