BrainNet Study: Maintaining Security of Supply – A Global Challenge

Bonn, June 20, 2007 – Guaranteeing security of supply is becoming a strategic issue for a growing number of businesses. Declining reserves of raw materials combined with fluctuating prices on the energy and raw materials markets are confronting the manufacturing industry in particular with existential risks, concludes the study Risk Management Reloaded – A Procurement Perspective by supply chain management consulting firm BrainNet.

The acute risk facing security of supply is a multi-faceted phenomenon. “In extreme cases, growing uncertainty about supplies of raw materials – especially on the metal
markets – and the extreme volatility of energy and raw material prices are resulting in lost output, and could even endanger the essence of a company,” says Dr. Lars Immerthal, head of Risk Management Practice at BrainNet and co-author of the study.

Raw material price risks associated with the highest probability
Risks to security of supply can be direct or indirect. A company can be directly confronted with insufficient availability of the raw materials, components or semifinished
products it needs. Security of supply can also be endangered when suppliers are unable to fulfill their contractual obligations because of material shortages or price hikes on the raw material and energy markets. The study shows that one in five suppliers is unable to sustain contractually agreed prices because of the situation on the raw material and energy markets.

Businesses are increasingly aware of the serious implications of supply-related risks. The overwhelming majority of companies surveyed in the multi-industry study identified raw material and energy price risks as the risk with by far the greatest probability of occurring and also high damage potential. Companies in industries that depend heavily on raw materials, such as the automotive and chemical industries, take an even graver view of these risks than the average for all sectors.



Risk Management Map, Source: Risk Management Reloaded – A Procurement Perspective, BrainNet, 2007

Rapid action and new approach to risk management needed
The study also reveals, however, that businesses do not take adequate consideration of the relationship between different risk types. Geopolitical risks, for example, are grossly underestimated. Politically motivated production shortages, mine strikes, regional instability and the growing demand for raw materials in emerging economies could all result in massive supply and price fluctuations, or aggravate fluctuations that already exist.

Both this study from BrainNet and a range of other studies serve to demonstrate the need for immediate action with respect to ensuring security of supply. The authors of
the World Economic Forum Global Risk Report 2007 consider interruptions in the supply of energy and raw materials a key global risk with an increasing likelihood of occurrence. “There needs to be a fundamental rethink of management approaches. The still widespread practice of focusing risk management systems on observation
and control of suppliers, and passing on risks to upstream partners in the value-added chain, has no future,“ says Sven Marlinghaus, a partner at BrainNet.

“Nowadays, businesses that want to survive must integrate their suppliers in a working partnership and take an unobstructed view of the diversity and interdependencies of risk factors that could endanger security of supply.” The study report and photographic materials suitable for printing are available on request. Please email BrainNet@maisberger.com

About BrainNet
BrainNet is one of the leading international brands in supply chain consulting and – qualification. With over 100 consultants worldwide, BrainNet develops customised solutions for blue chips, midcap companies and public service organizations. BrainNet services the needs of about 220 innovative companies and organizations including Bertelsmann, CLAAS, Deutsche Post World Net, Deutsche Rente, Miele, RWE, SAP and Vattenfall. BrainNet has offices in Bonn, Boston, Budapest, Chicago, Hong Kong, Shanghai, Tampa, Wroclaw and Zurich.

For more information visit: www.brainnet.com

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