Here at Ivalua we know that events such as suppliers having financial problems and going out of business or sending customers defective products are common and not new, we’ve been helping our clients to tackle this kind of risks since our creation in 2000. So how has supply chain risk evolved into The Next Big Thing? Supply risks have been increasing and going beyond the everyday challenges to a new level. They have been exacerbated by a number of developments, such as globalization and far-flung supply chains that make supply management more challenging occurrences.
Data breaches, now happening almost daily, were not a huge issue before the digital era. Risk incidents have gotten more visibility and have had a wider impact, sending stock prices tumbling and tarnishing corporate reputations. With the Internet and social media, bad news travels quickly: melamine in Chinese milk, volcano eruptions, and tainted drugs. The notoriety of supply risks has made supply chains become even more critical and certainly better known.
WHAT CAN YOU ACTUALLY DO ABOUT SUPPLY RISK?
When the term “supply risk” comes up, all eyes are on Procurement, whether or not Procurement is ready to address supply risk or has the corporate support and resources to do so. Supply risk has been getting a lot of press and causing a lot of hand-wringing. But supply risk isn’t really something totally new. You may already be doing many things to help manage and prevent supply risk. And, there may be numerous tools and techniques, such as the ones developed by Ivalua, already at your disposal that you can leverage to address supply risk. Haven’t procurement and supply management professionals been managing aspects of supply risk all along? And don’t they already have access to some of the biggest opportunities in their organizations to prevent supply risks from occurring in the first place? Many of these are procurement/supply management best practices that you already may be doing. If you’re doing the basics of Procurement and Supply Management, you’re already managing supply risk.
MAKE THE MOST OF THE SUPPLY MANAGEMENT TECHNOLOGIES
If you use spend management technologies, you already have a good toolset to use to identify, avoid, and address supply risk. Here are some of the applications you may already have that can help you address supply risk:
# Spend analysis: the ability to slice, dice, and categorize your spend can be enormously helpful in supply risk identification and management. Spend analysis is a good starting point for segmenting the supply base for risk. Besides giving the ability to identify high-spend suppliers, spend analytics can help identify potential sources of risk such as: items sourced from sole or single-source suppliers, from geographically risky locations, suppliers supplying items where there is currency risk or exchange rate volatility, suppliers who supply items on which a customer has a high dependency for reasons of unique technology, few alternative sources, or a specialized product or service, and suppliers who are financially risky.
# Supplier qualification: this application can help in creating a consistent, scalable, robust process for qualifying new suppliers. Standard questions designed to uncover supply risk elements can be asked of every potential supplier during the qualification phase of the sourcing process. Templates of relevant risk questions can be developed and used for specific categories of suppliers as appropriate. Information can be collected and analyzed and trends readily spotted from the data. As suppliers come on board, you can monitor the effectiveness of the qualification process for identifying potential supplier risks and modify it as required.
#Contract management: a contract management system can be a repository for clauses related to supply risk. It offers an easy way to search both for the presence or absence of risk-related clauses in currently-contracted suppliers and help identify potential risk issues. A system can help ensure that risk clause checklists and the clauses themselves are available for consideration and potential use. Also, a contract management system helps make contract renewals and supplier compliance to contract terms and SLAs (Service Level Agreements) easier to track and monitor.
# Supplier Performance Management: SPM can be an essential tool in the identification and prevention of supply risks. An SPM software application helps scale the supplier evaluation and performance management process, making it easier for Procurement to identify performance risk issues and negative performance trends early and take action.
# Business rating services and analytics: many third-party providers of supply risk management data and services are available. You are probably already using this technology. Third-party services use approaches ranging from analyzing publicly available financial information to customer surveys to data mining and even information crowd sourcing. They can uncover financial problems and supply chain risks during the supplier selection stage and for currently contracted suppliers. Also, these analytics can be imbedded in spend analysis applications where they can help in supplier segmentation for risk factors.
You may already have numerous tools and techniques at your disposal that you can leverage to address supply risk. As supply risk has become a more mainstream issue for firms and addressing it is spreading beyond just early adopters, more information and solutions such as Ivalua have become available for addressing supply risk identification, management and mitigation.