Although firms have always faced supply chain risk, the attention devoted to supply chain risk has increased dramatically in recent years.
The increased attention is likely driven by at least four developments.
- First, supply chains have become more complex due to increased globalization, growth in outsourcing activities, reliance on single sourcing, and the focus on removing slack from supply chains. While many of these strategies have improved performance, these strategies have also made supply chains more prone to disruptions.
- Second, the passage of the Sarbanes-Oxley Act of 2002 makes senior executives more responsible for forecasts of performance and protection of shareholder value. This has heightened the need to identify and manage various risks, including supply chain risk.
- Third, operational risks, including supply chain risk, are getting increased scrutiny from financial press, regulators, and large institutional investors.
- Fourth, the focus on supply chain risk has increased following a number of costly and highly publicized supply chain disruptions. Some recent examples include disruptions caused by hurricanes Katrina and Rita in 2005.