Supply Chain Risk

Procurement Can Prepare for  Supply Chain Risk

Alex Saric, Smart Procurement Expert, Ivalua

Supply Chain Managers  today have never been so reliant on suppliers to deliver goods and services to customers. Globalisation has made is much easier for UK businesses to trade across borders, allowing access to lower cost sources of supply and new markets.

This drive has resulted in increasingly global and complex supply chains, which expose organisations to more supply chain risk than ever before. Be it global tariff wars, natural disasters, supply chain disruption, unexpected events  or changing regulations.   Failing to minimise this risk could wipe off billions in share prices and leave corporate reputations in tatters.

Procurement has a vital role to play in identifying and managing risk. However, many teams are unable to provide their businesses with the visibility needed to protect revenues and reputations.

Businesses aren’t prepared for Supply Chain Risk

Risk can have a significant impact on many businesses – just look back to the European carbon dioxide shortage in summer 2018, where more European carbon dioxide production facilities than expected closed for maintenance. The lack of CO2 meant the production at the likes of Heineken and Coca-Cola was interrupted at the worst possible time, with England playing at the 2018 World Cup. To mitigate, businesses across Europe had to work with suppliers to find alternative short-term supply to ensure the shortage did not affect consumers.

However,  it’s not just supply shortages, regulations are another type of risk that can have an unfortunate sting for businesses. In January 2019, e.l.f. cosmetics had to pay a $1 million fine to the U.S. Office of Foreign Assets Control (OFAC) after their suppliers used third party vendors in North Korea, falling foul of North Korea Sanctions Regulations.

Having visibility into supply chains is paramount when it comes to identifying, preparing for and mitigating risk. However, our latest report which talks about how how global supply chains have left organisations blind to risk.  The report, conducted with Vanson Bourne, focuses on UK businesses,  found that the majority of organisations (84%) say the expanding global supplier landscape is making it challenging to keep on top of supply chain disruption. As a result, many businesses do not have comprehensive and deployed contingency plans in place to deal with; geopolitical changes such as tariff changes or Brexit (77%), natural disasters (68%), supplier failure (63%) and supply shortages (60%).

Procurement has a vital role to play

Whether it’s regulations or supply shortages, businesses cannot allow a lack of visibility to limit their ability to manage risk. As things stand, 69% of UK businesses face challenges gaining complete visibility into all suppliers and activity because data is stored in multiple locations and formats, making insights difficult to access. Consequently, this leaves organisations unable to review supplier activity and assess compliance.

With almost three quarters (74%) of organisations saying they have faced some type of supply chain risk in the last 12 months, it’s clear that Procurement leaders must ensure organisations can react to, and proactively plan for, risk that could impact business operations. To do this, organisations must adopt a Smart Procurement approach that provides complete visibility of suppliers. This gives control over supplier master data management to provide data-driven insights needed to evaluate supplier performance and risk.

Supply chain risk has become a major concern for businesses, but by gaining the ability to assess and track supplier risk, organisations are better equipped to identify and prepare for risks that could impact business operations.

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