With supply chain disruptions like natural disasters, terrorist attacks and cargo thefts costing industries billions each year, it would seem like a no-brainer that companies are implementing solutions to help prepare for and respond to these potentially disastrous events. But procurement can still face hurdles in convincing key stakeholders to invest in supply chain risk management technology that enable organizations to gain better visibility into their multi-tier supply chains.
Experts say procurement needs to demonstrate the return on investment supply chain risk management technology solutions can bring to the company. Demonstrating this ROI in an effective and easily digestible way is also key.
We recently reached out to technology providers that are helping companies tackle supply chain risk management today to get some insight on how supply chain disruptions are threatening businesses around the globe and how proper solutions can lessen the blow of these events. Here are three main takeaways to showing ROI from supply chain risk management solutions.
1. Demonstrate the Damages
Procurement and supply chain organizations are often viewed as a cost center for a company — something that doesn’t help its effort in gaining a bigger budget to invest in a new technology solution. It’s almost like insurance, said Rose Kelly-Falls of Rapid Ratings International, a firm that provides a supply chain risk management solution that enables companies to assess the financial health of their suppliers. It’s a service you always have to pay for but might not always use.
Supply chain risk management technology is still necessary, however. If procurement isn’t able to keep track of its suppliers, its suppliers’ suppliers and so on, surprises are likely to occur. And we’re not talking about the good kind of surprise, but the kind that causes massive supply chain disruptions and costs companies money.
Kelly-Falls said procurement shouldn’t necessarily focus on spend analysis when looking at its supply base, but determine which suppliers would cause the biggest impact to the company’s bottom line should the supplier shut down unexpectedly due to natural disaster or another disruptive event.
For example, Kelly-Falls said a company may think a supplier that provides a 5-cent part for a product is not a major player in its supply chain. However, if that 5-cent component is unique and critical to the company’s end product, then any unplanned plant outage could pose a major problem for the company and its ability to sell its products. Revenue risks like these need to be on a company’s radar, she said.
2. Focus on Supply Chain Resiliency
Supply chains should be “resilient,” according to Resilinc, a cloud provider of supply chain risk management technology. If hit by a disruptive event, a company’s supply chain should be able to bounce back quickly. This may include working with an alternative supplier for a period of time or putting other contingency plans into place. Actions like this could mean production is back up and running quickly with as little impact as possible to product lifecycle.
But a company cannot begin to respond to an event if it does not know one has happened. This is where supply chain risk management technology comes in. Certain solutions are able to monitor global events and alert a company to a potential supply chain disruption. This information, according to Resilinc Founder and CEO Bindiya Vakil, is power.
“Information is power at the end of the day, and having a lot of information makes it possible to use the supply chain competitively as an advantage,” she said.
When a supply chain disruption occurs, companies that are aware of the event first have the opportunity to beat the competition at bouncing back from it and possibly grab new market share in the process,” Vakil said. If companies start seeing supply chain resiliency as a growth investment opportunity like this, “it really changes how you perceive the dollars needed to be spent in supply chain risk management.”
3. Use Data Visualizations
Leo Bonanni, founder and CEO of Sourcemap Inc. said using attractive data visualizations can help stakeholders understand the broad reach and depth of a company's supply chain. Sourcemap offers enterprise software that aims to improve supply chain visibility, including supply chain mapping solutions. Company leaders outside of procurement and supply chain organizations may not know where suppliers are located or if they are operating in areas of the world that pose specific risks. Using geographic visualizations can help procurement understand the need to control these sorts of risks, Bonanni said.
With Sourcemap’s technology, supply chain managers are typically the first user of the data, he said, and use the visualizations to get the buy in from those outside the procurement or supply chain department. The visualizations can pinpoint where improvements in the supply chain are needed and how supply chain risk management software can help in the effort.
Supply chain mapping is still a new concept for many companies. Some firms still struggle to map their tier-1 suppliers. However, Bonanni said it’s clear companies are starting to take notice of the benefits of mapping technology and use it for their own supplier base.
Supply chain risk management solutions used to be “nice-to-have,” he said, but they are becoming essential for a handful of industries, especially as more compliance issues come into to play around conflict minerals and forced labor. Echoing others, Bonanni said having proper supply chain visibility tools in place will be key to maintaining a competitive advantage.
“If there is a disruption to your supply chain and it takes you days or weeks to find out how it is even impacting you, then someone is going to beat you and capture the alternative supplier.”