What is the real challenge of Supplier Risk Management?
In today’s very innovative market, no business can afford to do everything on its own. There is an increased reliance on Supply Chain, which implies that the performance of your Suppliers will have a profound and immediate effect on your organization. So Supply Risk Management is becoming more & more important because it is linked more & more to your performance.
Its weight is also increasing because it can influence the perception of your company by customers. For example, in 2013 the Rana Plaza factory collapsed in Bangladesh, killing 1129 people and injuring more than 2500 people. The investigation found out there were 19 Western Suppliers who had their products being manufactured in this specific location, including Benneton, Mango and Wal-Mart. It raised strong criticism and global protests, and victim’s families even filed suit against these retailers. There were protests in Paris, there were protests in London, and there were protests in the United States. Needless to say it has not done any good to these Western companies.
But if you look at a company like Wal-Mart, people who go there expect to be able to buy a dozen of socks for 1$, and that implies you cannot afford to have production in the US.
So the real challenge is to drive savings, improve quality, find innovation AND reduce risk. The big challenge is to do these 4 things at the same time.
What are the best strategies to mitigate Risk?
As we stated above, Supplier Risk Management is not about the elimination of Risk. It is about the identification of Risk, so that you can understand what risks your company is bearing, and make the choice of whether these risks are worth being taken or not. It can also help you mitigate these risks, but you can never eliminate Risk.
In order to most efficiently manage Supply Risk, top Strategies include:
- Defining clear metrics for Supply Risk & Performance
- Centralizing Supplier Information in a centralized system or database (supplier information management)
- Clearly defining ownership for managing Supply Risk
- Adopting systems to measure supplier performance, capabilities, and other key data
- Using third-party info services to monitor and assess supply risk
These strategies enable to identify best-in-class companies regarding to Supplier Risk Management. And best-in-class companies manage more than 90% of their Spend whereas other ones manage only about 50%. When you manage 90% of your Spend, it becomes easier to take better decisions, gain a leadership role, and also to seize all the opportunities in front of you.
Best-in-class companies also believe that Practice leads to perfection. For example, in the wake of the 2008 financial crisis, Toyota brought all its community managers to Japan. They all went through all the possible scenarios (e.g. if a supplier went bankrupt). By doing this they identified and hierarchized all the risks pending in the organization and by the end of year Toyota was the biggest car seller in the US (first time ever it wasn’t an American brand). They implemented a crisis management process and developed Supply Risk Management training programs. This example shows that how you manage Supplier Risk does really matter.
If you enjoyed this post, feel free to click here and access the full video with Andrew Bartolini from Ardent Partners