This morning, I'd like to welcome Rajesh Voddiraju to Spend Matters. Rajesh is co-CEO of CVM Solutions.
In today's environment, supply risk matters more than ever before. It's our view that given the state of the economy, supply risk will only increase in the coming months and years. If you have not already implemented a program that proactively monitors and assesses supply risk, enabling you to take action before a disruption, performance or quality decline influences your business, now is the time to do so. But don't be blindsided. Here are five quick tips to manage supply risk better.
1) Dedicate resources (either internal or external) to evaluating the financial stability of your supply base. Automate this process whenever possible and create an alerting system so the business knows when to take action. Above all, make sure that key stakeholders have access to this information rather than just business or technical analysts. Unlike spend analysis applications, which are often only used by a handful of individuals, companies should ensure that a cross-section of users have access to supplier risk information.
2) Continually assess supplier performance and correlate quality and service levels to overall financial stability and performance. Some companies run successful supply risk management programs only looking at non-financial supply risk factors (believing these alone are indication enough of disruptions or even catastrophic supplier failures). While we believe financial metrics are critical to consider, do not ignore supplier performance management information.
3) Don't fall into the trap of making supply risk information a best-kept secret. Manage supply risk information in a central repository so frontline practitioners know where to go to find information when they need it.
4) Create contingency and action plans that are ready to go whenever a supply risk monitoring system indicates an alert. These plans should include further analysis steps to validate findings as well as intervention steps based on how strategic a supplier is to the business (not to mention the time horizon on the specific risk factors).
5) Tier supplier development efforts based on how critical a certain supplier is to your business. In the case of highly strategic suppliers who are facing imminent financial duress, this might mean creating an approach whereby a team is deployed to focus on improving a supplier's overall cash management/order-to-cash processes in addition to quality and performance-oriented supplier development efforts.
Rajesh Voddiraju is co-CEO of CVM Solutions.