Today’s supply chains are no longer linear. They’re complex, inter-reliant global networks fraught with risk and riddled with opportunity. Empowered with procurement insights delivered in digestible, contextual formats, leaders can mitigate supply chain risk while exploiting opportunities and build a more resilient, optimized organization fueled for growth.
According to Gartner, “Top supply chain organizations experience less than one-third of the supply chain disruptions of their peers,” and they get there by influencing supply chain risks and reducing the number of disruptions that impact their enterprise.
To ensure agility and optimal decision-making, an effective Supply Chain Risk Management (SCRM) program must be empowered by data and grounded in cultivating a secure supplier network, mitigating internal and external risks and ensuring your organization, and its supply chain, are operating legally and ethically, protecting its employees, customers and business.
Understanding supply chain risk
Disruptions can strike quickly, end up costing millions of dollars, and can have a massive ripple effect, causing inefficiencies, decreased capacity, late shipments and quality issues, severely impacting your operation’s ability to service customers well and profitably.
From black swan events such as a global pandemic to logistical hiccups like the Suez Canal, and increasingly so, supplier bankruptcy, the areas of risk that supply chain leaders must keep their eye on run the gamut, introducing great risk to your organization’s:
- Reputation
- Operations
- Service levels
- Financial outcomes
- Market stance
- Long-term viability
- Growth plans
Due to its highly complex nature, identifying and assessing supply chain risk has never been easy, requiring contextual data, visibility of your end-to-end supply chain and insights into critical procurement data such as supplier credit ratings and business locations.
Visibility: Enabling you to sense and respond
Who are you doing business with? How much business? What exactly are you buying? Where are your suppliers located, and how are they doing financially? Where do you get all your X supplies from, and how many borders or waterways lay in between?
Procurement decisions and strategy building require deep procurement insights. Constricted by poor visibility, overly complex spend analysis, and massive blind spots, procurement teams have always struggled to identify risk, make strategic spending decisions and deliver financial and strategic value.
Empowered by a platform that turns incongruent chaotic data into clean, categorized spend analysis and visually digestible formats, you can see what you need when you need it, and from all angles, enabling CPOs and procurement leaders to identify savings opportunities, improve category management, estimate cash flow and better manage risk by:
- Performing a more thorough risk analysis
- Removing spending blind spots
- Viewing spend by region or supplier
- Controlling maverick and tail spend
- Ensure ESG and regulatory compliance
Supply Chain Mapping
Mapping your supply chain can help you analyze potential impacts, shorten your time-to-action and ensure a suitable level of response in times of disruption.
Enabled with the right visibility and data, you can simplify the process of identifying, assessing and mitigating your most pressing risk factors and develop a risk response strategy that gets to the root of the issue, minimizes supply chain disruption, and builds a more resilient and profitable enterprise.
Spend analysis software that affords you visibility on procurement data can help identify, assess and mitigate risks stemming from:
- Geopolitics- sanctions, tariffs, etc.
- Logistical bottlenecks (shortage of ocean containers)
- Unethical labor practices
- Government sanctions
- Regulatory and Corporate Social Responsibility/ESG requirements (including diversity)
- Supplier or regional concentration
- Supplier solvency
For example, you may have a single-source supplier based in a politically unstable region, a vendor with an alarming credit rating serving all of your locations, or a critical supply or service sourced from an area experiencing extreme weather conditions leading to operational and logistical issues, all points of vulnerability that are easier to spot when mapped.
By analyzing all of your spend and critical data points, you can minimize the risk prevalent in undermanaged spend, including the often-forgotten tail spend and out-of-control maverick spend. Service providers specifically run a risk of being undermanaged due to a lack of information. Leading to poor project outcomes, increased security risks and value leakage.
SAP Fieldglass and Oxford Economics research survey revealed that less than half of research participants stated they are “highly informed” of basic information such as contract terms (48%) and location (44%).
Only one-fourth are highly informed about progress against milestones or deliverables (27%), the quality of the work at the supplier level (25%), and the quality of work of individual contributors (18%).
Best Practices for Managing Supply Chain Risk
Get the right tools
To enable reliable analysis and decision-making, data sources must be trustworthy, accurate and consistent. This means having one source of truth, preferably in real or near real-time.
Visualization tools can help make procurement data more digestible and easier to understand, helping you to identify patterns and trends and spot outliers. Charts, graphs and dashboards can assist in interpreting complex information more easily, providing you with valuable context and comparisons.
Evaluate supplier performance and ensure contract compliance
It’s an old but still relevant adage, the squeaky wheel gets the grease. If left unmonitored, suppliers can quickly veer off course, opening the door to financial, quality and service risks. By identifying areas of non-compliance or underperformance early on, you can mitigate your risks, optimize outcomes and allow time to address performance issues with corrective actions before it’s time to renegotiate contracts.
Evaluate supply chain risk with regularity
Supply chain risk is often a part of the equation when selecting and vetting new suppliers. But risk isn’t static. Although it would be great if you could monitor all risks for all suppliers on a regular cadence, for most, that simply isn’t realistically feasible.
A more pragmatic approach is to establish a schedule to monitor your highest risk factors for your most critical suppliers on a consistent basis and create a streamlined process for keeping an eye on key metrics and indicators.
Mitigate your dependency risks
A more holistic view of your supplier landscape and purchasing patterns will allow you to identify concentration and dependency risks and highlight single points of failure.
Are you single-sourced on a key service or a raw material with scarcity issues? Are you overly dependent on a single region experiencing political turbulence? Multi-sourcing supply models or suppliers with capabilities of servicing from various locations can help mitigate risks. And when possible, vary your modes of transportation. Think “outside” the box here, literally. Establishing various acceptable forms of packing can help you vary your modes of transportation and opens the door to a wider supplier base, allowing you to be more agile in times of disruption.
Check your blind spots and mine for opportunity
Don’t neglect analyzing your maverick or tail spend.
When it comes to regulatory and ESG compliance, you’re responsible for the entirety of your spend.
Your maverick spend may also be a gold mine of low-hanging fruit littered with opportunities for consolidating and optimizing purchasing behaviors, streamlining procurement processes and reducing your number of suppliers for improved efficiencies and hard cost savings. It can also be a great area to focus on ESG and diversity goals.
Lastly, when prioritizing action, give consideration to where your biggest risks lay, the likelihood of disruption, and the potential impact, and ensure to align actions and decision-making with your organizational values, objectives and tolerance for risk.
This may mean making some tough calls. Know who your most important clients are, who you may have to let down, and, for example, just how much you’re willing to spend on emergency airfreight. Be clear on who your decision-makers are, and streamline the process to ensure nimbleness.
SpendQube x Procurato: Helping you manage your supply chain risk and exploit opportunities for optimized procurement
Together, SpendQube and Procurato provide you with the tools and the hand you need to drive cost savings, mitigate risk and ensure quality because a resilient organization is a competitive one.
SpendQube
SpendQube is like a filter for your spend data, distilling it into actionable insights. By ingesting data from any source, using pre-built supplier categorizations to automatically cleanse data, and using bespoke, intuitive dashboards built by procurement leaders for procurement leaders, it helps you quickly and easily delve into answers to your most pressing procurement queries.
A dedicated spend analytics tool is an ideal solution for procurement because it breaks down spending in a way that is highly insightful for procurement decision-makers. They are purpose-built for procurement analysis, ensuring they offer comprehensive features and tools tailored to the task. Specific procurement analytics solutions are also designed to handle large datasets and provide better data integration opportunities, allowing for a more accurate view and analysis of spending.
Procurato
At Procurato, armed with market insights and deep expertise, our specialists assist clients in de-risking their supply chain and building a more resilient supplier network, helping them to:
- Perform Supply Chain Risk Assessments and identify vulnerability points
- Improve Supplier Relationship Management (SRM) for improved performance and collaborative risk mitigation
- Build tailored Supply Chain Resilience strategies suited to your organization’s values and goals
- Drive ESG and compliance through the supply chain
We help unlock quick wins and set up long-term sustainable benefits while ensuring that we take the capacity burden away from our clients with a team of focused industry experts.
Whatever challenges you’re facing, our associates will be with you every step of the way to help you drive value from your procurement processes.