Supplier Risk Management – from 360° Supplier View

Here as promised is another taste of the excellent report, "Supplier Management - Market Insight", from Declan Kearney of consulting firm 360° Supplier View. (You can download it here).

Kearney looks at the different segments of the Supplier Management market – considering SIM, Risk, SRM, Sustainability and Social Enterprise Collaboration. Here is just one part of that extensive analysis.

Market segment – Supplier Risk Management (‘Risk’)

 Supplier Risk Management is the proactive identification, assessment and resulting management of supplier‐related risk, particularly warranted where there is high dependence on suppliers to achieve business objectives.  Over the past five years, organisations have suffered  from the experience of seeing certain strategic suppliers rapidly move from stability to insolvency, causing significant financial, operational and competitive issues. Given increasingly global and complex supply chains, materially impacting events are often far removed from the controls and visibility of the end customer.

While the majority of businesses are aware of the threat of supplier-related risks, only the minority have successfully invested in Supplier Risk Management solutions, supported by business processes. Aberdeen Group research suggests good risk management can reduce the risk of “supplier crises” by 30% for best in class organisations. The cost of getting it wrong, or ignoring supply chain risk, can be catastrophic up to and including the survival of the entire organisation.

Risk framework:

Regulators are increasingly mandating standards for and investigating the transparency of Supplier Risk Management practices. Defining a risk framework and related internal controls is proven territory for most organisations. However the interpretation of risk controls and how to apply them to suppliers (and other third parties) is quite complex and unchartered territory for many organisations.

Attributes of a Supplier Risk Management framework vary by company and by industry. The common attributes to consider include Commercial/business intelligence (provided by companies such as D&B), supplier auditing (including visits to supplier sites/ facilities), safety and security, supply dependency, multi-tier (primary, secondary, tertiary etc.) supplier visibility, economic & political risk at a country level, environmental risk, anti-bribery, Anti-Money Laundering (‘AML’),government blacklists, reputational/brand and social media (rumours/ speculation).

Once supplier-related risks, specific to the operations and industry of the end customer, have been fully evaluated and processes and systems are in place to pro‐actively monitor defined risks, the next step involves implementation of a seamless, collaborative process to enable speedy issue resolution and constantly improving business continuity planning.

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