Supply chain risk is becoming a hot-button issue requiring attention from everyone in an organization. Supply chain management and procurement are no longer viewed as isolated activities; they’ve evolved into complex, embedded aspects of every organization. This is the perfect time for procurement executives to step up and leave a mark in their organization by improving Supplier Risk Management.
Undetected supply chain threats can negatively impact a company’s brand and bottom line—take Takata’s recent recalls as an example. Dozens of automotive brands that faithfully sourced Takata’s airbags were instantly scorned when it was realized they carried faulty airbags. Though Takata took the hit, the company carried with it all of its vendor partners.
Top management rarely has sufficient visibility into what’s really going on within their supply chain until it’s too late. A study by the Business Continuity Institute and Chartered Institute of Purchasing and Supply found that nearly 80 percent of companies do not have full visibility into their supply chains. This is problematic considering 76 percent of companies experienced at least one incident that caused supply chain disruption in the past year.
From CEO to CFO and beyond, everyone plays a part in managing risk. Here are some tips for C-suite executives looking to get more involved:
- Know your suppliers
It is key that all executives—from marketing to IT and finance to legal—have access to a database with any relevant supplier documentation. A lack of transparency over primary, secondary and even tertiary suppliers puts an organization at a huge disadvantage. In the event of a production delay or billing challenge, a sprawling network of outsourced vendors makes it more challenging to identify the root cause of the problem.
Unfortunately, different teams or employees often use different processes and tools to track suppliers, making it difficult to compare supplier performance. To make it easier on the organization, consider consolidating supplier information into one database or upgrading to an e-sourcing solution to better manage and streamline all aspects of supplier relationship management.
- Catalog current supplier risks
Supplier risk comes in many forms – anything from weather, natural disasters, fraud or regulatory noncompliance – so it’s important senior management knows what they’re up against. Integrating a digital procurement and spend management platform with a comprehensive catalog of known supplier risks helps form the basis of supplier scorecards, audits and other monitoring activities. This way, senior executives can stay one step ahead of potential issues and remain in line with those on the floor dealing with suppliers in real time.
- Implement appropriate monitoring tools
Firms in highly regulated sectors such as life sciences and pharmaceuticals typically take a sophisticated approach to tracking risk. But even in less regulated sectors, strong monitoring systems help mitigate serious risks associated with labor and human rights. Rather than sticking to manual audits and inspections, businesses need more robust tools that can pinpoint weak spots in real time before they trigger a catastrophe.
A good example is everyone’s favorite tech vendor, Apple. The company has come been criticized over its relationship with Foxconn. When Foxconn was found in direct violation of labor laws for overworking employees without proper compensation, Apple took the brunt of the blame. For executives looking to steer-clear of third-party risk to prevent public embarrassment, it’s pertinent to raise supplier standards and better manage the supplier vetting process.
Times are changing. While some procurement departments proudly bear the full responsibility for vendor management and supplier risk, a more balanced approach involves all senior executives within the company. To create an environment of transparency and prevent any transgressions, senior executives should invest in the tools that will allow their organizations visibility into their supply chain.
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