“Risk management is not a purchasing initiative. It’s an initiative and philosophy that has to be embraced by the entire organization.”
-- Rose Kelly-Falls Senior VP Supply Chain Risk, Rapid Ratings and event panelist
This week’s webinar notes are from a February 13th webinar hosted by IASTA and featuring a panel of speakers. An on demand version of the event is available on their website.
The quote offered above from Rose Kelly-Falls, one of the event’s panelists, is a concise statement of the event’s core message, and represents the perspective procurement must take if we are to successfully provide supplier risk management to the organziation. Part of what makes today’s data so ‘Big’ is the number of contributing sources: internal v. external, structured v. unstructured. If procurement is to successfully leverage this data on behalf of their organization, we must understand what sources to use when assessing and monitoring the risk factors associated with each supplier, location, or industry.
It is much easier to process and apply structured data, such as supplier financials, because of its easy availability. The downside of structured data is that is it only represents a snapshot in time. This limits its value in supporting predictive analytics and decision-making. Unstructured data includes text, video, pictures, and social media content. Despite the challenges associated with gathering and interpreting this large volume of information, unstructured data represents much of the future potential of improving real time reactions to risk.
Although there are many supply risk solutions available, failed initiatives are common, especially before a third party solution or service provider is brought in. The primary challenges are:
Many of procurement’s supplier management activities are prioritized based on the Pareto Principle, or the '80/20 rule'. Usually, it stands to reason that 80% of the opportunity is associated with 20% of the spend in an organization’s supply base. But when it comes to risk, this approach is not sufficient. As the realization of this fact spreads, there is a resulting shift in how risk is assessed, basing attention and effort on revenue impact rather than just spend. A simple component may not represent a significant extended cost, but if it is a critical part of all product lines and is not easily available from an alternate source, the revenue impact may be quite high if there is a disruption.
When getting started with risk management efforts and third party information, many procurement organizations start with traditional news sources such as online newspapers, and then expand to include blogs and communities. Twitter and Facebook, although growing in use, additional effort is required to determine whether each source is reliable and objective.
Moving forward, procurement organizations will need to approach risk management as more than a passing fad. Investments need to be made, and should be clearly identified in the budget. More involvement from Finance will increase the emphasis on regulatory and sustainability concerns.
Has your organization implemented a risk management program? What role does procurement play, and how involved are other functions? Share your thoughts by commenting below or by joining the conversation on Twitter: @BuyersMeetPoint.