Driven by demand for lower manufacturing costs and access to specialist capabilities and technologies, most supply-chain operations rely on a complex mix of large and small businesses. Every single one of these companies depends on each other to deliver as promised, and shares information, advice, and data – all on a mission to provide quality products and services to the end consumer. And as beneficial as these large supplier networks are, they risk bringing the operation to a complete standstill.
Although it is common sense to protect supply chains from severe and costly disruption, many executives compromise this wisdom to provide service levels and products that customers demand while optimizing profitability. Yet growing awareness of reputation, brand issues, and supplier sustainability and labor practices are shedding light on the underlying risks of today’s supply chains.
Emerging risks that could impact your supply chain in 2017 and beyond
In recent years, procurement organizations have focused on making supply chains leaner, more responsive, and highly cost-effective. In turn, businesses can operate with as little inventory in stock as possible and get the right products to the right customers at the right time. However, these advantages are often eaten away by the growing vulnerability and rising risk of damaging disruption of the supplier network.
Because very little inventory is available to act as a buffer against lost manufacturing time and low productivity, hiccups and failure anywhere in the supply chain could potentially impact the entire value chain. And it’s not just direct suppliers that present concern; in fact, greater risk may reside within a supplier’s network of suppliers.
Such impactful disruptions can arise from a number of sources, including:
- Natural catastrophes: The output of magnetic hard drives declined 30% worldwide when Thailand suffered widespread flooding after months of unusually heavy rainfall.
- Human-made disasters: The radiation leak at the Fukushima Daiichi nuclear plant, following an earthquake, contaminated the local food chain and created a global ripple effect of severe price spikes, falling stock prices, and component shortages.
- Supplier delivery delays: Reliance on a single supplier impacted 28,000 employees across six out of Volkswagen’s ten factories in Germany when its seat-cover provider did not deliver on time – leading to a €100 million loss in revenue.
- Financial or economic crisis: After Lehman Brothers announced its bankruptcy in 2008, the manufacturing sector suffered a significant drop in customer orders of up to 42%, collapsing entire supply chains as a growing number of providers went out of business.
- Government regulations: An ever-growing set of local, national, and international mandates impact everything from operational processes to product ingredients, especially restrictions on chemicals, hazardous substances, and suppliers financing conflicts and terrorist organizations.
These are just a few of the many incidents that have given chief procurement officers (CPOs) great cause for concern. Even cyber hackers are tricking employees to unintentionally make fraudulent wire transfers, steal or corrupt information, and disrupt operations of multiple businesses.
How procurement can help prevent supply chain disruption
Risk is often manifested in supplier-related issues that present challenging dilemmas for the procurement function. It may seem easier to resolve the problem by identifying and onboarding alternative suppliers, but very rarely is this the case. What’s needed is a clear understanding of which factors drive inventory and how to best manage any looming risks.
Such clarity is possible only with an end-to-end view of the entire supply chain. However, most procurement organizations are unable to achieve such visibility due to:
- Information residing in multiple systems – internally and externally – that are not tied to each other
- Fragmented processes that are forcing procurement to work with multiple lines of business individually to maintain due diligence that comes from ongoing process monitoring
- Risk management processes that cannot be scaled beyond top suppliers to address secondary and tertiary suppliers
Supply chains may be complex, but they don’t have to be unpredictable. By automating and integrating technology into other corporate systems, CPOs can have a better sense of the overall purchasing life cycle. They can precisely correlate how cost savings can impact quality, operations, and delivery. Supplier performance is auditable so that the company can help ensure that every business contributing to the value chain is compliant with all government regulations, corporate policies, and labor practices. More important, procurement can intelligently sense emerging disturbances and define a strategy to counteract them before they occur.
By understanding the how, where, what, and why behind every supplier decision and using tools to measure, report, and validate perceived advantages, businesses can engage a comprehensive risk management program that drives continuous operations, increases reputational and investor value, and improves accountability for the overall chain. Accurate and up-to-date supplier information for all your trading partnerships, readily accessible across your organization—that’s what you need to manage supplier performance and risk.
The thing is, without the help of technology you’ll have a hard time getting your hands on it. Because you’re managing hundreds – if not thousands – of relationships, with new suppliers coming online in the digital economy every day.
For more insight on supply chain management, see Conquer Supply Chain Resource Scarcity With These 7 Technologies.