State of Risk 2017: Procurement Needs to Be More Proactive About Supply Chain Risk Management

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That procurement is shedding its origins as a back-office function is old news. As organizations become more advanced, their role in the overall company is evolving into a more strategic one compared with its tactical past. And a crucial component of this strategic transformation is taking responsibility for mitigating supplier and supply chain risk.

But how many procurement organizations actually have a comprehensive risk management strategy in place? RapidRatings and ProcureCon Indirect East teamed up to conduct a risk-focused benchmark survey of 88 procurement executives, the results of which are published in a report titled “The State of Risk.”

Source: “The State of Risk: Understanding Threats to Business Continuity, Supply Chain Challenges, and How Procurement can use Financial Health to Build Resilient Supply Chains”

The survey found that more than a third of the respondents experienced a “significant” supply chain risk event in the past 24 months, negatively affecting revenue, reputation and production time. Yet adoption rates for key elements of a solid risk management strategy, such as centers of excellence and supplier portals, remain at well below 50%, with 21% of the respondents reporting that they have none of the seven features the survey asked about.

Among those key features, supplier portals are the most popular, with 41% of the executives reporting that they use them. Procurement centers of excellence (CoE) — which Spend Matters Chief Research Officer Pierre Mitchell describes as an “internal entity that performs knowledge-based services on a one-to-many basis to procurement (and to broader stakeholders) in order to drive scale, repeatability and best practice” — are in second place, with a 38% adoption rate.

As Mitchell wrote earlier this year, “Nearly all progressive procurement organizations have some sort of [CoE].”

The Must-Track Metric

From commodity price fluctuations to cyberthreats, risks affecting supply chains today are numerous. But the report suggests that a good place to start is taking stock of your suppliers’ financial health. Fewer than half of the survey respondents actively track supplier finances, but this should be taken as a best practice.

When survey respondents who did encounter supply chain disruptions over the last 24 months were asked to specify their causes, financial problems at a supplier were involved in 42% of the cases.

“The most commonly reported cause of supply chain disruption was a financial issue on the part of a key supplier, resulting in losses of both production time and revenue,” the report points out. “It’s easy to write that off as just another metric, but financial health is a factor that touches across many facets of an organization’s performance … [and it can] signal a host of other challenges in advance of their most disruptive consequences.”

Has there been a more extreme example of this recently than the mess caused by Takata’s bankruptcy filing at the end of June? The supplier’s faulty airbags have been linked to about a dozen deaths, led to the recall of tens of millions of vehicles — and of course had highly damaging repercussions for Toyota, General Motors and other automakers that sourced from the company.

CNN reported that the automakers are likely to have to pay up to $5 billion to replace Takata airbags currently in vehicles — reputational consequences aside.

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