@Risk

The top three concerns for retailers today are the recession, damage to reputation, and supply chain disruptions and failures, according to new research by Aon.

Unfortunately, Aon’s “2009 U.S. Retail Industry Report” also found that retailers rank these three concerns as the ones they are least prepared for. Over half of the survey respondents (53%) say they aren’t prepared for supply chain failure or damage to reputation (52%). A third (33%) feel they lack adequate preparedness for the economic slowdown.

How do today’s retailers actually identify their major risks? I was surprised to read in the report that nearly half say they rely on “senior management intuition and experience” as the primary method for risk identification (49%) and assessment (46%).

Obviously, risk identification based exclusively (or even mostly) on experience has its limitations. For starters, it’s inconsistent. It can also lead to exaggerated risk aversion. Perhaps most important of all, experience alone isn’t a reliable predictor of emerging or new risks.

Retailers would benefit from a more balanced approach that uses senior management know-how in combination with a comprehensive supplier risk management system, one that integrates real-time supplier network information with core supplier data and dynamic risk mitigation strategies.

Remember, in an earlier AMR Research study, 12% of manufacturers said  that more than half of their suppliers have experienced disruptions that impacted their ability to serve them. Experts predict a protracted economic recovery, and that means supply chain disruptions and failures will continue to be high on retailers’ list of concerns for quite some time.

Aon’s 28-page report is available here (registration required).