Risk management solution providers and what their customers really want – State of Flux
11/12/2024
As part of our Q4 research into supplier risk, third-party and supply-chain risk management (TPRM/SCRM) and the solutions that support it, we have not only conducted analyst- and market-led research in the shape of analyses, advisory, definitions and webinars. We have also taken the pulse of the practitioners who use that technology and who deal with risk on a daily basis (for example here and here). To round off that perspective, we’d like to engage the thoughts of the solution providers themselves, particularly in terms of how they believe their customers perceive risk and what they want from today’s solutions.
Visit our In-Depth Guide to Risk Management for an explanation of this complex environment.
For today’s vendor viewpoint we asked Alan Day, CEO & Founder of supplier relationship management specialist State of Flux:
Have you witnessed a significant change of appetite for risk-related tech over recent years from your customer base?
“Over the past few years, we have seen risk gain in importance as a driver for supplier relationship management (SRM) program and in getting the business case signed off. Typically SRM programs are built around a business case from three areas: Value, Risk and Innovation. Over the past few years, though, we have seen Risk gain in prominence both in the annual survey responses and in the clients we speak to. From the 2023 results, we have seen that those organizations with a structured SRM program are seeing a 20% reduction in supplier-related risks.
“We are also seeing the emergence of TPRM functions that sit alongside supplier management activities, and while these are great, there is still some confusion in the market about how they work together. For example, many organizations have yet to recognize that poor supplier performance is a risk or that a poor supplier relationship is a risk. The latter is particularly important because the key mitigating factor for dealing with supplier risk is to use the relationship to solve the problem. The other two mitigating factors are to try to improve the situation, which is why we have developed a TPRM curriculum and partnered with CIPS on our training. Finally, you can insure against the risk, which is why we work with AON and its Supply Chain Disruption insurance.”
What are the primary areas of risk concern for your customers and what are their requirements?
“We hear a number of concerns from clients, but the three most common are 1) how to know which suppliers they should apply TPRM techniques to, 2) how to use technology to identify and manage third-party risk and 3) how to ensure people have the right level of skills and training. To identify the right suppliers, we recommend supplier segmentation, but our research has shown that most organizations are still poor at supplier segmentation, with the most common approach still being segmentation by spend and criticality. The best organizations use a range of segmentation criteria (up to 15), including what impact the supplier has on the end-customer experience and whether the supplier sees you as a strategic customer.
“When it comes to technology, organizations are still looking to the big software companies to solve this problem, rather than creating an ecosystem of technology suppliers to provide input into different areas of risk, such as ESG risk, financial risk, cyber security risk and so on, and then using an overarching supplier management system to bring it all together into a consolidated view. Similarly, the use of technology to measure and manage supplier performance is critical to this, but often overlooked.
“When it comes to training, our 2024 SRM research shows that the vast majority of organizations haven’t mapped the organizational chart of who interacts with strategic suppliers, only 15% have conducted a capability assessment and less than a third have trained their core people (and only a tiny percentage have trained the wider organization). BUT they are training the wrong things, again the research shows that the training is in negotiation or category management skills and not in TPRM, risk or softer behavioral skills.”
How do you see the future of TPRM tech and what should be the response of providers like yourself?
“We have used our research not only to help clients benchmark their programs, but also to ensure that our products and services support their needs. We saw that risk and TPRM were becoming key drivers, so we strengthened our partnerships with S&P Global, Aon and CIPS. We’ve invested heavily in our software, particularly in areas such as Supplier Performance Management and Relationship Management, as well as partnering with other risk-based software providers to offer a more holistic service to our clients.
“As mentioned earlier, we have also developed a TPRM training curriculum to enable our clients to upskill their teams and manage this themselves, and we will continue to build on this and other areas to ensure that their people are properly invested in to keep up with the changes in global legislation and the changes in the way organizations approach this.”
Many thanks to State of Flux for sharing its observations with us.
At the end of our series our analysts will consider both the vendor and practitioner contributions we have received and summarize the findings from the authors’ perspectives.
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SXM07/24/2018
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SXM07/24/2018
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