Weaknesses in the supply chain that were brought to the forefront by the pandemic should have made it clear that understanding supplier risk management and why its implementation is crucial should be top of mind for today’s procurement executives. Here is an overview of supplier risk management and 5 strategies for mitigating your company's risk.
Weaknesses in the supply chain that were brought to the forefront by the pandemic should have made it clear that understanding supplier risk management and why its implementation is crucial should be top of mind for today’s procurement executives.
However, Deloitte’s Global 2021 Chief Procurement Officer (CPO) Survey revealed that supplier risk was only the sixth highest priority and 52 percent of respondents said their company did not use supplier risk management tools.
Software companies that offer supplier risk management solutions, however, are taking it more seriously. In SAP Ariba’s 2022 Q4 features update there are six updates to the Supplier Risk Management module. That’s a lot of updates to one module for a single release.
Supplier risk management is an evolving discipline in operations management for manufacturers, retailers, financial services companies and government agencies – any scenario where an organization is dependent on suppliers to achieve business objectives. Managing supplier risk is about managing the potential for disruptions in your company’s supply chain due to an unforeseen impactful event.
The pandemic caused many disruptions in the supply chain, making it difficult to source products that are commonly used by manufacturers, retailers and other industries. In addition to manufacturing and supply chain disruptions, quality-related recalls of food, medicine, and even toys mean that those suppliers are now unavailable to the companies that rely on them. Sometimes closures and recalls, or just bad management, can force a supplier into bankruptcy.
Other types of risk may involve sensitive data and the potential for information losses, or even environmental impacts.
There are numerous scenarios that can put your company at risk of supply chain disruptions. And the narrower your supplier network is, the more vulnerable you may be to losing an important link in your supply chain.
There is no way to completely eliminate risk, but you can mitigate it with a supplier risk management plan. Whether that is SAP Ariba Supplier Risk Management software or another solution, it’s crucial to have a program in place.
Here are 5 recommendations for reducing supplier risk:
There may be more that your company needs to do to identify and mitigate risk, that probably depends a lot upon your particular industry.
But the most important thing to understand is that there are risks along all supply chains. Not acknowledging that and taking preventative action to avoid these risks can cause disruptions that may be difficult to recover from.
Many companies who are looking for supplier and vendor risk solutions don’t realize that they already have one — it’s included with SAP’s Strategic Sourcing Suite.