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How Procurement Can Help Minimize Supplier Risk

More than half of chief procurement officers see risk management as a top business strategy, but are they really doing enough to minimize supply chain risk in today’s trading environment?

The electronics procurement department faces a wide array of challenges, not the least of which are ongoing concerns about supplier risk. Even just one supplier that goes out of business, is impacted by a natural disaster, or overstates its ability to fulfill orders can seriously disrupt an organization’s supply chain.

According to the most recent “Deloitte Chief Procurement Officer Survey,” buyers are well aware of the risk issue but many are ill-equipped to do anything about it. In fact, the firm says 54% of chief procurement officers (CPOs) view risk management as a top business strategy (taking a backseat only to cost reduction and new products/market development).

The problem is that 65% of procurement leaders told Deloitte they had either limited or no visibility beyond their Tier 1 suppliers. “This has major implications for organizations across all select key suppliers, and particularly for meeting regulatory and corporate social responsibility requirements and for the identification and mitigation of supply chain risks,” Deloitte reports, noting that greater visibility lends itself to more innovation and improved total cost of ownership.

The Long Path to Digital Transformation

Many procurement organizations have started down the path to digital transformation—with nearly 25% starting that journey with payment and requisitioning/ordering processes—but according to Deloitte’s survey, supplier risk management remains one of the least digitized processes at this point.

The good news is that there are steps that electronics buyers can take to turn this tide and improve their supplier risk assessment processes. In “Brace for a Wave of Change in 2019: Procurement & Supply Chain Challenges,” Vishal Patel discusses the growing emphasis on supply chain visibility in relation to overall risk management. He points to Internet of Things (IoT) connectivity, tariffs, natural disasters, and geopolitical unrest as just a few of the key factors impacting supplier risk right now.

“Even sabotage should be on your radar—recent reporting about tiny spy chips found on Supermicro servers has sent shock waves through top U.S. companies and federal agencies,” Patel writes. “Similar security and reputational risk also arises due to the inherent vulnerability to cyberattacks introduced by IoT and other connected components.”

In “Supply Chain Risks Come from All Sides,” IndustryWeek’s Matt Gunn discusses myriad technologies that have emerged to help companies manage risk and minimize losses. Calling visibility—the tracking of parts, components, or in-transit products from the point of manufacture to the final destination—a “fundamental part of managing risk,” Gunn points out that organizations which have end-to-end visibility of their supply chain are able to react to change more quickly and reduce the harmful effects of a breakdown somewhere along the way.

“Doing so takes more than simple point systems; it requires all parties involved in the supply chain to interact and share information in real time,” Gunn writes. “Connecting all parties of a supply chain as a business network helps ensure that when something does happen, each stakeholder can adapt to the situation.”

If, for example, an electronics manufacturer runs out of raw materials or if a cargo ship can’t get into port due to bad weather, “companies can dynamically shift inventory or production somewhere else, or find an alternate berth for that ship stuck out at sea,” Gunn concludes.

You Can’t Just Set it and Forget it

Supplier risk management is not a “set-it-and-forget-it” process. To be most effective, the exercise must be repeated throughout the life of the vendor-customer relationship. “Periodic evaluation of your suppliers can be a positive process for all involved after some initial resistance,” Scott Hill writes in “Minimizing surprises in your company’s supply chain.

For example, conducting “360-deg. evaluations” is a growing trend in the automotive, defense, and aerospace industries. Through that process, procurement gets a comprehensive view of supplier strengths and weaknesses from every possible angle.

“These reviews go far beyond simple price evaluations,” Hill writes, “and often include evaluating the supplier on value, compliance, quality, risk, their place in the market, diversity, and performance.”

Blockchain for Supplier Risk?

Looking ahead, blockchain could become a CPO’s best friend in the race to reduce supplier risk. As an immutable ledger that tracks transactions from the point of manufacturer right through to final delivery, blockchain is currently being used to mitigate financial crime risks in about 15 of the world’s supply chains. Expect that percentage to increase, and for blockchain’s use to branch out beyond just financial crimes.

“Enhanced transactional transparency and visibility along the chain of custody are pushing organizations to look to blockchain to help prevent and detect supply chain fraud, waste, and abuse through third-party relationship management and transaction execution,” said Deloitte’s Larry Kivett, in a press release. “Layered with advanced analytics, blockchain can offer supply chain managers a path to digitizing prevention and detection of financial crime.”

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