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Supplier risk

Supplier risk

CPO

Nick Ford - Managing Director, Odesma

Supplier risk – is it now the number one priority for the CPO agenda?

Cyber-attacks, data protection, Brexit and the increasing trend for outsourcing now means that managing supplier risk in a structured and visible manner is vital for organisations as part of their Procurement and Supply Chain strategy and capability.


In a recent survey by Odesma, purely on Brexit, the results revealed that planning and risk management was still being underplayed by many larger organisations, which, in this day and age, is very surprising and somewhat disturbing.


I would argue that cost reduction is still seen as the number one role of the procurement organisation from stakeholders within their own company, BUT having a process, capability, and technology to manage ongoing supplier risk has to be of more value in the longer term. Changes to supplier risk positions can be affected by various factors ranging from financial performance, significant executive changes within the supplier, to geographical and political influences and this should be monitored on an ongoing basis as part of a supplier risk/supplier relationship management program.


This has to start with supplier onboarding and ends with supplier removals or deletions if this is deemed necessary for maintaining the performance to the business. I would recommend a structured approach and implementation of business intelligence to manage the elements “in the middle”, as outlined in the diagram below;

Copyright in this material resides solely with Odesma® and is not to be reproduced in any manner without the explicit permission of Odesma.

 

Key to managing this is the ability for these activities to be performed across the organisation with executives, stakeholders, contract owners and procurement
working in tandem with the suppliers. I would argue that such a program is best run by procurement teams on behalf of the company as the main “conduit” into the
supplier base – this in turn increases the profile of the team.

Business intelligence is absolutely critical in underpinning each of these activities; it is no longer a simple matter of getting an automatic feed from a risk management agency..... it now needs advanced business intelligence to understand supplier risk positions from a “multi-tier” supply chain aspect (managing the
suppliers suppliers) and detailed scenario planning for critical partners to the business. In addition, the procurement teams must have the capability and
bandwidth to perform such activities and it be part of the strategic agenda.

The value in getting this right for the broader organisation is absolutely crucial and pivotal in strategically managing the supplier base as part of a relationship
management and innovation viewpoint, in addition, this should be a key element of any partnering strategy.

Suppliers should also see an opportunity to get integrated into the buyers’organisation by offering transparency within their supply chain and being as pro-
active and responsive as possible – risk management will never go away so the ability of suppliers to work in partnership in such a program will become
increasingly fundamental to becoming chosen as a supplier.

Procurement leaders should see this as an opportunity to increase the role and value that their teams bring to the organisation. They do however need to invest in
the capability that performs these activities, any supporting technology and data tools as well as being able to demonstrate the value of this to the rest of the
organisation. It therefore needs to be a key aspect of the procurement and supply chain strategy, supported by policies and procedures and the appropriate reporting structure and tools for the whole organisation. The key activities as part of this advanced role for procurement are:

Copyright in this material resides solely with Odesma® and is not to be reproduced in any manner without the explicit permission of Odesma.

 

So, in summary......is supplier risk now the number one priority for the CPO agenda?
Well if it’s not number one then, in my opinion, it is a very close second!

 

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