Webinar Notes: Supply Chain Risk Management: How to Turn Worst Practices into Best Practices
These webinar notes are from an October 8th webinar on ‘Supply Chain Risk Management: How to Turn Worst Practices into Best Practices’ hosted by SIG and presented by Rolf Zimmer and Laura Enny at riskmethods. The webinar can be viewed on demand here.
The event opened with a look at what riskmethods considered to be the top megatrends: globalization, outsourcing, digitization, and climate change. Running through all of these trends is the changing role that suppliers, and therefore the supply chain as a whole, plays in our ability to understand complexity and the elevated risk levels and additional risk types it leads to.
Procurement has a tendency to think of supply chain complexity as improving the flow of goods, services, funds, and information between suppliers or tiers of the supply base. Although this expanded perspective is an improvement over where we have been in the past, it is still too simplistic. As Zimmer pointed out in the webinar, supply chains are not just lines from point A to point B, but complex networked structures where half of all disruptions take place beyond the first tier of the supply base.
While the presenters delivered on their promise to contrast worst (or poor) risk management practices with best practices, the greater value in their message was around perspective. In order to root out and address risk where it lurks, we need to adopt a supply chain risk management state of mind.
What does this mean?
It means that in order to understand our risk, we can not just go about previous activities and add risk to list of things we consider. We have to look at our suppliers, supply chains, and the greater environment in an altogether different way. The best examples of this from the event are:
- We can’t trust suppliers or logistics experts to manage risk in the supply chain on our behalf, because disruptions may be associated with locations or materials rather than companies. Each person’s view of the supply chain is limited by their perspective of it and which is closely tied to their role. Procurement needs to break free from this constraint by taking in as much data as possible, leveraging automation to manage as many inputs as possible, before making recommendations.
- Don’t allow the Pareto principle to become a Pareto trap. Procurement, driven by metrics such as percent spend under management, has a tendency to rank suppliers by total spend and manage them from the top down. According to the riskmethods team, on average the riskiest suppliers represent 2% of spend volume – placing them squarely within the ‘long tail’ of spend that often is not managed at all, and it if is, not strategically.
- The amount of spend you have with a supplier doesn’t have any connection to how likely they are to be associated with sanctions or regulatory breaches. All suppliers need to be managed equally in the face of such standards, again pointing out the need to have an automated solution for taking in and filtering risk-related information.
In fact, the entire corporate culture has to become more proactive where risk management is concerned. People need to be engaged, consistently incorporating supply chain risk into every-day decisions rather than considering it a function to be fulfilled by procurement alone.