Risk: are you doing enough?

A “Perfect Storm” has been gathering for while with respect to managing risk within the supply chain and as a result this has been impacting resilience across procurement. Most storms blow through, and effects are generally short lived, however, this is not the case in this instance. There are several contributing and unforeseen factors which are placing Risk Management even more at the forefront of Chief Procurement Officers minds than ever before. Supply chains and their operators across the world are being faced with an unprecedented number of challenges when met with the issue of keeping goods moving at an affordable price.

Procurement risks occur when the process of purchasing or sourcing products, services or resources becomes unreliable.  For many businesses, the COVID-19 pandemic has reminded them of the impact these risks can have on business performance.

Nearly a third of transportation and warehousing companies identified rising energy prices as the main reason for increased operating costs, and more than half of companies are already incurring higher costs due to the current energy crisis. More widely, inflation in the supply chain can cause a ripple effect on prices, causing supply chain costs to rise, which causes more inflation and increased prices. The current inflationary pressure is caused by increases in production costs, such as wages, raw materials, energy, and transportation.

Many companies are still not doing enough to address the impact of these disruptions and put in place measures that would mitigate further issues as these statistics clearly show; 

• 75% of companies have experienced external disruptions to their manufacturing supply chain in the past year
• 57% ​of companies believe that diversifying their manufacturing supply is the best way to prevent future disruptions
• 98% ​of companies believe measures should be taken to avoid future supply disruptions, but only 63% have done so to date
• 56% ​of companies have experienced more disruptions to their supply chain this year than last year

Tactical firefighting has distracted from strategy creation and implementation.​ Now we have more awareness of risks in the supply chain, through enhanced tools and better processes. But there are still some basic page one supply chain management rulebook tenets that need to be followed;

• Careful supplier selection, diversify where possible but keep number of suppliers as low as practicable
• Use Preferred Supplier Lists to ensure delivery and cost optimisation
• Understand and be aware of Tier 2 and 3 suppliers’ structure
• Review the Governance structure to ensure that it is fit for purpose

On the toolset side, there are a number of very good risk management solutions that can be implemented to provide increased visibility of risk and allow you to make sound judgement calls on your supplier base, including your suppliers, based on real time and continuous assessment information.

The storm may be hanging around, but the first step is increased visibility of the potential risks to allow you to then to put in place a strategy to mitigate against the effects. Do not be one of the 37% that have yet to take any action.

Author

Didier Lombard