Preparing For Risk In All Its Forms

Henrik Smedberg

Since the early years of supply chain management, risk management has been considered a buyer’s initiative. The complex nature of today’s supply chain means that is changing. Companies on both the buy and sell side of the transaction need to keep risk front of mind, as it is increasingly clear that both have much to lose from a crisis.

On both sides, the risks presented by the loss of a key customer can ripple across a multi-tier supply chain, affecting revenue, reputation, the environment, job creation, and even economic development.

As this complexity has grown, it’s become all the more imperative that every step of the supply chain is monitored and prepared for risk, which can range from the impact of global trade spats to hidden slavery. The old saying, “what you don’t know can’t hurt you” simply couldn’t be further from the truth in this industry.

Luckily, technology can make getting a grip on risk a lot easier. Visibility and transparency are now easier to gain than ever before – even across complex, global supply chains. The real power lies in how businesses interpret the data to mitigate their reputational, financial, and environmental risks.

Reputational risk

One of the most important factors for determining a business’ reputation is how it treats its people. The internal and external workforce are more than just a network of people, companies, and processes; they are important partners whose performance and overall well-being has a domino effect on the rest of a business.

Since the Australian Federal Government passed the Modern Slavery Act in 2018, many businesses have begun taking steps to ensure the integrity of their supply chains and the safety of the people within them. The act was passed to increase business accountability in the wake of shocking findings that at least 15,000 Australians are living in conditions of modern slavery.

The inconvenient truth is that many businesses have long been unknowingly contributing to modern slavery, whether it be forced labor, underpayment, or other workplace exploitation because they are not keeping track of suppliers’ practices.

The good news is that business networks are now able to leverage technologies such as machine learning and artificial intelligence to analyze millions of data points throughout the supply chain. With this 360-degree view of a buyer’s or supplier’s health, the system can automatically deliver risk alerts by company, geography, and even commodity, making it easier to spot and stop slavery in the supply chain.

Financial risk

In our fast-moving geopolitical environment, trade can often take a hit. As tension rises between two of Australia’s largest trading partners, the US and China, there’s a high financial risk on local businesses.

As a first step, it is critically important that all businesses, large or small, assess their supply chains and ensure resilience to further shifts in trade policy. This means assessing the impact of potential supply shortages, cost increases, or even the need to find alternative sources for materials or parts.

Digital business networks and cloud-based procurement solutions become critical in this process. They can help businesses find more economically efficient supply chains and alternative sources for manufacturing materials or even anticipate bottlenecks in the supply chain before they become an issue.

Environmental risk

For more than two decades, our plastic recycling industry was reliant on China, which would melt down the plastic waste we send them before repurposing and selling it. China was processing almost 70% of the world’s recycling prior to 2017, when it shut down its recycling industry after realizing the negative impact it was having on its environment.

Australia has since found itself in a plastic crisis, with countries including Malaysia and India following suit and banning plastic waste imports from Australia. Without the built infrastructure to process the large volumes of plastic waste we are accumulating, many local businesses are grappling with what can be done.

One answer is procurement with purpose. This is a growing movement that looks at ensuring the sustainability and social responsibility of the supply chain. With greater visibility and transparency in the procurement process, businesses can choose more environmentally responsible suppliers and keep track of plastic use. 

Taking a proactive stance

In today’s uncertain, complex and interconnected economic environment, the only thing that is certain is that companies will face more reputational, financial, and environmental risks and challenges than ever before. But with the right tools and an agile mindset, they can effectively manage, overcome, or even avoid them in the first place.

Knowledge is power. Through technology, procurement leaders on both the buy and supply side are increasingly able to harness it – not only to see into the future but to shape it to their advantage.

Do you want to fully utilize your ERP system capabilities to reach your business goals? SAP Innovation and Optimization Pathfinder may be the service that you are looking for. Join our webinar on September 24th to find out more.

This article was originally published by PASA and is republished by permission.


Henrik Smedberg

About Henrik Smedberg

Henrik Smedberg is regional vice president, SAP Ariba ANZ.