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Why everyone’s talking about supplier risk intelligence
It’s fair to say that the global pandemic has been an education for most of us, regardless of the industry we work in or the work we do.
It’s illuminated a host of critical issues and forced companies to rethink how they evaluate their end-to-end supply chains and supplier relationships. Massive disruptions to these supply chains have been frequent and hard to predict, and that’s left many organisations scrambling to understand their risk exposure. As a consequence, a lot of them have come to The Smart Cube in search of assistance.
In fact, between 2019 and 2020 we saw our total number of risk-related business opportunities more or less triple. And in 2020, requests for information and proposals related to supplier risk increased roughly tenfold. But supplier risk is always present in supply chains, so why are so many companies only starting to look into it now?
An eye-opening global crisis
The answer has something to do with scale. Risk is pretty much the only constant in global supply chains, but it doesn’t always have such a devastating effect.
When a huge global disruption like COVID-19 comes our way, however, and the impacts are well and truly felt, companies quickly learn that they have a choice. They can either learn from these events and make changes to their risk exposure so they’re better prepared next time, or tightly cross their fingers and hope it won’t happen again.
As you can imagine, this second approach isn’t one I’d recommend – although it might be more common than you’d think. It’s interesting to note that 85% of businesses currently lack the capability or capacity to manage third-party risk on their own.
The problem with the fingers-crossed approach is that COVID-19 isn’t where supplier risk begins and ends. Although the scale of this particular disruption is rare, there have been similar instances in the past, and there will be others in the future. From natural disasters to socio-political events, there are endless things that can impact global supply chains. So, companies that don’t start preparing for the ‘next COVID’ now will invariably suffer the same difficulties when it arrives.
We feel so strongly about this at The Smart Cube that we have written a book on the subject, called Risk and Your Supply Chain: Preparing for the Next Global Crisis.
The insights most in demand
It’s clear then that the need for more clarity into supplier risk has become increasingly apparent, and organisations across the globe are looking to implement a more structured approach to risk monitoring. But what insights, in particular, are they looking for?
In our experience, companies are in search of three things: help with data governance, assistance implementing a structured risk framework, or analytics and AI solutions that can help cut through the complexity of sprawling, international supplier networks. Or, as is often the case, a combination of the three.
- Data consolidation and analysis
Often, the first problem organisations face when trying to gain a clear view of risk is limited access to data and intelligence across their supplier base. After all, without a reliable and robust data source, it’s impossible to spot emerging risks and take the right actions to remediate them.
In the organisations we work with, we often find data scattered across different systems and sources. Procurement organisations are aware of this, too. But they simply don’t have the resources or tools required to correlate, contextualise and analyse this data in any meaningful way.
Instead, they rely on us to combine internal and external sources and create a standardised, centralised and frequently updated data repository that risk management initiatives can draw from.
- Prioritising risk
Once that data is in place, procurement organisations have the information they need to start segmenting and prioritising suppliers. This allows them to define different approaches for suppliers that are critical to business continuity, as well as those that pose the most significant risks to operations.
Risk falls into three major categories at this stage. Supplier-related risks factor in suppliers’ business strategies, financial stability, sustainability practices, and compliance. Category-related risk considers price escalations, tech disruption, industry consolidation, market shifts, raw material availability and regulatory changes. And then there are sourcing and location-related risks, including natural disasters, climate change, socio-political events and new regulations and policies.
At The Smart Cube, we provide insights into each of these areas to some of the world’s most prominent organisations, helping them understand where the biggest threats and opportunities lie.
- Implementing analytics and AI
At this stage, organisations start thinking about how they can gain the most accurate and in-depth insights into each of these areas of risk, and look to incorporate the latest technologies, tools and techniques to ensure a proactive approach to mitigation.
At the Smart Cube, we deliver a mix of Human Intelligence and Artificial Intelligence to meet this need, providing the insights organisations need to predict and manage risk, even in the most uncertain circumstances.
With data experts with years of experience, continuous data ingestion and regular training of machine learning tools, we can provide insights that continue to improve over time – helping our clients to clearly identify patterns and anticipate future events.
Our work in the field
Using these techniques, we recently helped a major pharmaceutical company gain complete visibility of supplier risk across numerous categories and regions.
Like many organisations, this company based its risk assessments on historical data and credit risk ratings, which didn’t accurately reflect the reality during the pandemic.
It also suffered complications caused by risk assessments coming from two different data providers, resulting in inconsistent conclusions and no visibility of aggregate risk.
Using The Smart Cube’s Supplier Risk Intelligence solution, the organisation has identified, monitored and mitigated risk events for 4,000 suppliers to ensure business continuity and performance. The result has been simplified compliance and significant cost savings.
“With this level of insight, we now have a complete view of the risks represented by our suppliers,” said a category manager at the company. “It’s been invaluable in allowing us to make more strategic sourcing decisions and helping us to mitigate risk in a time when predicting almost anything can prove a monumental challenge.”
Facing tomorrow’s risks, today
If you work in procurement, it might help to think of risk as a colleague. It will always be there when you show up to work, and your life will be a lot easier if you find a way to work alongside each other harmoniously. Doing so means developing a risk management strategy today. If not, when the next major disruption occurs, it may be a case of too little, too late.
If you’d like to learn more about how we can help you unite information, simplify insights and fuel a risk strategy fit for the modern age, visit the Supplier Risk Intelligence page on our website.