Supply Risk Management Stays in the Headlines

Lest anyone believe that positive thinking will render supply risk management a less important issue in the coming years, it might be best to reconsider such a perspective. According to a recent article in Supply Management, "Research from the Chartered Management Institute suggests 49 per cent [of companies] do not have any plans in place to ensure they will be able to keep running if disaster strikes." That sounds like an awful high number to me -- and it shows the lack of investment companies have made to date to reduce their supply risk exposure. And unfortunately, I do not think companies in other countries are paying much more attention to the supply risk management challenge than those in the UK. Why? AMR's Mark Hillman is interviewed in the article, and he notes that "the complexity of supply risk management has prevented many firms tackling it properly." Mark suggests "buyers either start with the most high-risk supplies -- those from sole-source suppliers -- or the most strategically important supplies ... buyers who haven't drafted plans should see it as an opportunity to raise the strategic profile of procurement and adds that involving finance will help because once they see the financial risk they will assist."

In my view, companies need to think about five key topics as they approach supply risk management in today's environment. This list is not exhaustive, but can serve as a starting point.

First, companies should think about how their Spend Management strategies are contributing to or helping mitigate risk. For example, are supplier rationalization strategies contributing to risk by concentrating spend with a handful of offshore suppliers? Spend Management leaders need to ask themselves how a change in strategy can impact overall risk exposure.

Second, companies need to begin to think about risk outside of their immediate tier one suppliers. For example, what would happen if a lower tier supplier faces a commodity shortage, or goes bankrupt? Mapping the web of complete supply relationships is a critical step.

Third, organizations should consider what types of third party tools and services can help them better manage risk. There are a handful of solutions on the market today, and most rely on a combination of financial and performance monitoring. Investing in these types of solutions is an absolute no-brainer in my book.

Fourth, companies should think about supply risk outside of supply disruptions due to supplier shutdowns or other supplier-related issues. Avian flu, terrorism, port delays, and the South American communist tide are all examples of supply risk which cannot be managed and mitigated merely by keeping your eyes on suppliers.

Fifth, companies should consider Spend Management sustainability by looking at the market and brand implications of supply risk. This category of risk also transcends supplier performance and financial challenges. Consider the use of child labor or damaging environment practices by your global suppliers and how this might impact your brand and reputation in the market.

This list is just a quick start. We'll continue to examine supply risk at Spend Matters in the coming months. Perhaps we could even get a dialogue going with Mark Hillman, who seems to be the only analyst tackling the subject at the moment. Mark's supply risk work at AMR so far has been invaluable. Let's hope he keeps it up!

Jason Busch

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