Where can Procurement Do More in the Area of Risk Management (Part 4)?

Please click here for the first, second, and third posts in this series.

In asking Novartis' Sammy Rashad to write a regular column on his experiences, Procurement Leaders has clearly not only surfaced one of this procurement generation's best applied thinkers, but also found a vehicle for him to share his ideas in a collaborative, public way where others can provide additional comment and analysis (the true value of community, in our opinion). In a recent column, Sammy proffers up the view that there are five separate areas where procurement can expand the "breath and depth" of its contribution to the practice of supply risk management. Further segmenting this list, he suggests each step beyond the previous brings "increasing complexity and benefits."

The fourth level -- signifying increased complexity but also potential rewards -- that Sammy suggests is to "go deeper in the supply chain by applying the previous points to second-tier vendors." In other words, pursue a multi-tier supply chain risk management strategy.

In exploring the topic, Sammy further suggests "many news reports in the past years have exposed companies' vulnerability to the weakest link across their entire supply chain. This risk can be reduced by adding contractual provisions (e.g. pass-through clauses in supplier agreements to include in their sub-contracts) or addressed directly through active involvement to help our 1st-tier vendors better manage their own supply base."

But these are tactics. What is needed first, in many cases, is multi-tier visibility into supply chain risks. This is something most of our systems are not set up to achieve today from a supplier management perspective, although many US companies do have some experience on multi-tier reporting gained from suppliers diversity reporting requirements. Yet risk requires a more dynamic approach than monitoring sub-tier diversity spend components. For this reason, our experience suggests that the best means of driving multi-tier risk management programs is to take a tool-centric approach.

Platforms such as E2Open can provide execution-level visibility across a multi-tier supply chain, including early insight into potential late shipments, disruptions, etc. More broadly outside of specific orders, we also recommend solutions like SAP Suppleir InfoNet. But in all cases, it's often most valuable to master tier one supplier visibility first across an entire supply base -- something most companies are just beginning to learn the hard way. After all, the 80/20 rule breaks down in a fractal manner when it comes to supply risk, first with direct suppliers, and then with lower tier suppliers. This is why multi-tier management and visibility is a game that can only be played by those with automated tools and insight.

For further information on supplier management strategies, tools and processes on both single and multi-tier levels, we recommend the following Spend Matters research briefs on the topic:

Leveraging Supplier Management Platforms for Multiple Goals: Risk Reduction, Supplier Diversity and CSR

Supply Risk Management – Segmenting the Technology and Content Landscape and Choosing the Right Category of Solutions

Beyond Basic Scorecarding – Supplier Performance and Development Approaches to Drive Competitive Cost and Risk Advantages

Supplier Management Market Observations: Recent Trending, Musings on SAP's Core Offering and General Deployment Pitfalls (for all Solutions) to Avoid

Sourcing, Contract Management, and Supplier Management Cloud – Business Users Benefit From Savings Enablement

- Jason Busch

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