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Signs of Supply Chain Trouble: Risk Data

By  Paul Cook  on  4 Sep 2014
  • Supply Chain
  • Procurement Strategy

Do you know where your information is? The answer is "Probably Not." If global business news tells you anything, it’s that organizations can be caught by surprise, whatever the size, wherever they are in the world.

There used to be a question over whether organizations were aware of the impact of the risks that lurked in their supply chains. But businesses have seen the effects and learnt from them, if nothing more than the urgency of developing risk management capabilities. According to the MIT Forum for Supply Chain and PwC Global Supply Chain and Risk Management Survey more than 60% of the companies surveyed said their performance indicators had dropped by 3% or more because of supply chain disruptions.

But imagine how various headlines might have played out in the presence of better data-oriented capabilities.

On a macro-level, better awareness of the financial health of suppliers can show where vulnerabilities lie and give a broader picture of the future of an industry. So just as it’s vital to know if a key supplier is in trouble, if you can tell whether you have resilience to a significant economic headwind, you’re in a better position to map out your course as a business.

Meanwhile, the risks in the wider value chain can result from everything from a poor contract at a key node to an intelligence leak from a supplier. As a procurement organization, it’s a responsibility to have knowledge of the supply base and where the pressure points are. The oft-cited Lululemon, makers of yoga pants, ultimately lost upwards of 12% of its share price as a result of a single-sourcing situation, supplier failure and subsequent product recall of overly sheer garments. A lesson in transparency indeed.

But the future of the procurement function doesn’t just lie in knowing where single-source instances occur - sometimes these are unavoidable – but where they have an impact on strategic supply, they’re important enough that no team could be said to be performing their duty if they ignored them.

These might be aspirational risk capabilities for some, but in some industries, it’s just the start. There are those, such as Flextronics CPO Tom Linton who believe that we’re in a period of transformation for the function and the next big leap will centre on procurement’s ability to have greater control deeper and more broadly across the value chain. In this scenario, tier one suppliers are gateways to a better understanding of tier twos and threes and it’s there that risk management’s future lies – indeed, many are well into that journey.

So what trends are going to shape how we use information to develop resilience?

  • Big Data: In a sense, procurement needs reliable information from specific sources, rather than a huge stream of input. That said, putting supplier-fed information together with a broader range of sources will be key to building a more comprehensive picture.
  • Evaluation: We’ve seen scorecarding develop as a technique after it was pioneered by automotive groups, but there’s still a long way to go before modern supplier evaluation techniques become reliable enough to start to make bold statements about risk, particularly when paired with, for example, the consistent enthusiasm for low-cost country sourcing.
  • Collaboration: Together we’re able to collect and share information, and that nexus of standards and global performance metrics can provide a basis for contracts, sourcing strategies and ultimately guide business decisions. For some industries, that’s a reality, for others it’s a scary notion.

Back in 2010, Harvard Business Review published an article urging that businesses should have a range of supply chain information at their fingertips. Here we are several years later, can we honestly claim to have the tools we need to protect ourselves from deep-lying risk?