INVITATION: Mitigate the risk, manage the cost
Supply chain disruption can happen to any organization, whether they’re caused from a supplier site failure, environmental or geopolitical factors, or even adverse weather. This is why, if it’s not already, risk management should be a top priority for businesses. The consequences from not actively identifying, managing and mitigating supply chain risk can significantly impact an organization’s profitability, not to mention brand reputation and potentially, its sheer existence.
Late last year, riskmethods set out to determine the current “state of risk management and mitigation” in today’s global business ecosystem by surveying more than 250 senior procurement executives from across the globe. The study unveiled important findings around how prepared procurement leaders are to tackle rapidly evolving business environments brought on by new, more complex threats, and the current methodologies employed to manage risk in the supply chain.
Here are just a few areas the survey covered:
Preventing disruption is crucial
All senior procurement professionals identify ‘avoiding significant disruption to the supply chain’ as a top priority, but when survey respondents were asked whether their organization had a significant disruption in the past 12 months, more than 47 percent indicated that they had experienced between one and five. Additionally, a surprisingly high 13 percent indicated that they had 20 or more significant disruptions in the past year. Arguably the most alarming statistic – 12 percent of respondents did not even know whether there were any serious disruptions to their supply chain during this time. This is a testament to the 12 percent’s minimal visibility into their operations. According to this data, nearly all organizations faced a disruption in the past year, speaking to the prevalence and nature of supply chain threats at they continue to increase.
Ability to uncover risks is scarce
The current landscape has made it critical for procurement professionals to have real-time, thorough views into potential risk and their impacts to make well-informed purchasing decisions. Many organizations have implemented some form of tracking mechanism for risks, but how often the data is updated is another issue. When we asked respondents about the frequency in which data is refreshed, less than one third of respondents answered continuously. This is an alarming percentage. Risk monitoring in today’s digital business environment needs to be a 24/7/365 task. Organizations that aren’t receiving continuous updates are falling behind and can’t possibly be making the best decisions for their business.
The underlying cause of this lack of complete information is usually associated with traditionally highly manual processes. Not only is the manual approach an extremely tedious and time-consuming task, it also takes away resources from other critical objectives. Most importantly, it severely limits big-picture insights and increases the chances of a serious supply chain disruption. When survey respondents were asked what level of automation their organization employed to refresh critical information, less than one percent of respondents indicated that it is completely automated. An additional 39 percent indicated that they were in the low to moderate rage of automation, relying heavily on manual tools such as Excel in conjunction with some outside sources. A full quarter of respondents indicated that they have no automation capabilities at all and are completely reliant upon manual search.
Supplier risk impact assessments are key
Understanding a supplier’s potential impact on the business is key for procurement teams when it comes time to make purchasing decisions. For example, if a major supplier gets hit by a severe weather event which causes a delay in shipping, that could cause a ripple effect that halts production and eventually leads to a loss in revenue. When survey participants were asked if their organization had a mechanism in place for measuring the impact a supplier has on the business, almost half said that their organization had no structured assessment of supplier criticality or impact. Having no such assessment means organizations are at times putting their fate in the control of someone’s best guess. Organizations must have clear visibility into their supply chain, including which suppliers have the greatest potential impact, so they can refocus resources on reducing risk and preparing for a crisis.
Many organizations are ill-equipped to mitigate emerging threats
While being able to identify potential risk is a crucial procurement workflow, having the ability to act on that information and mitigate evolving threats is equally, if not more important. Only slightly more than 20 percent of study respondents indicated they have plans in place. An additional 27 percent indicated that no such plans exist and 53 percent indicated that there were only partial plans in place. These numbers demonstrate how difficult it is to evolve into a mature organization when it comes to prioritizing risk because businesses lack the necessary level of stakeholder collaboration.
Supply chains will never be free of risks, but an organization’s ability to prepare for, identify and mitigate emerging threats will set them apart from the competition. Procurement teams can’t possibly make well-informed business decisions without a risk management strategy in place. As the number of risks continues to increase in this environment, the need for accurate, actionable insights will only become more critical. When it comes to risk management, companies need to consistently be moving forward as the current threats will only continue to evolve.
Risk can often be perceived as a negative attribute within an enterprise. However, join us at our upcoming Procurement Round-Table on March 14 to find out how procurement can mitigate risk and manage cost and deliver value!
Get into the driver’s seat at Kart In Club – Helsinki! Places are limited, register here.