Is Supply Risk Management a Waste of Time?

Over on Procurement Leaders blog there's a fascinating little piece of commentary in a recent post debating whether or not "supplier risk research is a waste of time". It's worth reading in full -- along with the subsequent Linked-in comments -- because of what appears to be an outlandish suggestion from one procurement executive, a CPO of a pharmaceutical company, that we should ignore supply risk from a supplier monitoring perspective. Personally, I'd like to know who this CPO represents, because given his argument, I'd like to go out and short his employer. It's nothing personal -- I just see an opportunity to make a few quick bucks in the next year.

It's clear to me that this CPO is completely uneducated about what supply risk tools are available in the market. In his view "detailed risk assessment is a waste of scarce resources" and he "would much rather spend the time and effort on putting in place back up plans" versus preemptive monitoring. The paraphrased logic behind this argument is "That the only certainty is that a supplier somewhere will go to the wall -- which particular one isn't the important issue. The important issue is to ensure that the company has back up plans and strategies in place."

What a bunch of rubbish. Clearly, this guy has been hitting the Pimm’s before noon this summer, and has no business leading the procurement charge for a global organization. Given his ignorance of pre-emptive monitoring tools that combine and sort through operational and financial data to predict and forecast uncanny accuracy (90%+) with months of lead time as to which suppliers will become insolvent, I have no hope that he understands other, more nuanced areas of supply risk monitoring either (e.g., compliance monitoring, production processes/quality, etc.).

In my view, risk management is a critical charter for any CPO today. Pleading ignorance and suggesting that you can't prepare for disruptions by preemptively shifting spend to other suppliers or developing those that you proactively realize are in a strong "at-risk" category reminds me of the logic behind those in Europe who dismissed the warning signs of the Nazi threat to the Continent and the UK in the late thirties. Why take action, these types of folks reasoned, when the dangers lay within the country's borders. But unfortunately, as the world quickly learned -- and as all of us know when it comes to supply risk today -- those "someone else’s problems" can rapidly become our own. And if the opportunity affords to take preemptive action to lessen the pain, why not do it?

Jason Busch

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