Risk management has been a feature of procurement responsibilities for well over a decade now, but over the last fifteen months the topic has risen dramatically in prominence. The reasons why hardly need explaining.
This is a trend I’ve seen develop first-hand. In my role as a solution owner at The Smart Cube, I’ve spent a lot of 2020 and 2021 speaking to customers and prospects about their risk management challenges – and helping to develop solutions to meet their needs.
I feel the needle has finally shifted. The effects of this pandemic are set to have a lasting impact on procurement organisations and the way they approach their work. So, as we slowly start moving back towards something resembling normality, I thought it would be a good time to reflect on the lessons we’ve learned over the last year and a half. And think about how we can apply them as we strive to tackle risk in the new normal.
In a recent webinar, The Smart Cube’s MD and Co-Founder Omer Abdullah was joined by three supply chain experts from Moderna, Bonduelle Fresh Americas and CASME. Here are five key takeaways from their conversation.
Not just supplier risk: The risk landscape is vast and varied
Monitoring and managing supplier risk has always been a priority of sorts, but previously it’s had to fight for space alongside other priorities like cost savings, innovation and supplier diversity. COVID has changed this for good. It’s safe to say that supplier risk mitigation is now the number one priority for procurement organisations worldwide, and it’s likely to stay that way.
The downside of this is that when you start looking for risk, you begin finding it everywhere. Procurement organisations are now obligated to understand, respond to and anticipate a wide-ranging and complex network of risk challenges, including things like malware or cyber attacks, the impacts of extreme weather events, logistics interference, inflation and more.
When we asked our webinar audience about the risks they currently face, 83% said supply chain continuity was their biggest concern. This makes perfect sense when you consider that most of us spent the last year desperately trying to ensure supply so we could bring products to market. Below this though, other considerations like cyber security and sustainability were already creeping into the consciousness of many of our audience.
The breadth of what ‘risk management’ entails can make it very difficult to know where to start and where to stop with your initiatives, and many organisations may find they require some expert assistance to get to grips with this complex landscape.
The pandemic has been good for procurement
You’d have to be particularly glass-half-full to find many positives in the COVID-19 pandemic, but Graham Crawshaw, a Director and Board Member at CASME, thinks there may be one for procurement.
“The pandemic has been good for procurement,” he told our audience. And I believe there’s a lot of truth to that statement, too. The conversations happening around procurement and risk in the post-COVID world have elevated the function’s standing in most organisations.
Procurement now has a place at the senior leadership table and this may be the beginning of a long-term change in attitude. With the spotlight on procurement, now is the perfect opportunity to start illustrating the real value it can bring to the organisation beyond cost savings and cement that seat at the leadership table.
We need to understand the butterfly effect of supply chains
As one of the producers of a COVID-19 vaccine, Moderna has had an even more interesting year than most, with the stakes of its supply chain operating successfully being about as high as one could imagine. Vice President of Global Procurement, Steve Listzwan, shared some of the things he’s learnt over the last 15 months.
The most important thing according to him? Having a complete understanding of the nuances and complexities of your supply chains and categories. This includes knowing who your suppliers are, who their suppliers are, what the network looks like, what risks are involved and where, and what your backup solution is in case of any disruption.
Scott Wilkerson, Chief Procurement Officer of Bonduelle Fresh Americas, shares this view.
“We tend to focus on the immediate risks that we face,” he says. “But we’re really just recipients of the risks our suppliers face. We need to understand that when a butterfly flaps its wings there’s always a residual impact of that.”
Say goodbye to work rules (agility is key)
In volatile and complex environments, agility and adaptability are key to survival and success. Procurement teams need to be able to respond to issues as they arise. This means two things: firstly, you need a team that can handle volatility and quickly find alternative suppliers when things go south. Secondly, you may need to rethink traditional processes.
Although things like a seven-step sourcing process is normally a must, in the environment we currently face there just isn’t enough time. So, for now at least, your traditional work rules have to go out of the window.
Instead, you need to focus on making quick decisions, and that’s a lot easier to do if you already have robust contingency plans in place for at least your strategic categories before they’re needed.
The biggest obstacle? Knowing what to do
We also asked our attendees to name the biggest obstacle preventing them from establishing effective risk management strategies. As many as 40% said an inability to take action once risks were identified was their number-one challenge.
This shouldn’t come as much of a surprise. Highlighting risk is one thing, but actually knowing what to do about it can be a completely different ballgame.
One of the problems is that addressing risk often involves doing things that you’d naturally try and avoid, like broadening your supplier base and sourcing from different geographies.
There can also be a problem in identifying the right solutions to help manage risk. Large ERP solutions can often be a source of frustration in this area. And companies offering big data solutions and algorithms can often lead to an information overload.
Truth be told, to successfully manage risk, you need a combination of processes, capabilities and resources. These include the right tools and insights, to help you anticipate risk and quickly establish alternative supply strategies. An in-depth understanding of your sprawling category and supplier networks. And the right people, to assess emerging situations and communicate their findings clearly with stakeholders.
If you’d like to hear more of our experts’ thoughts on supply risk management, you can watch the full webinar here. To learn how The Smart Cube can help you reduce risk and highlight new opportunities in your supply chain, visit our Supplier Risk Intelligence solution page.