Your Guide to Managing Supply Chain Risks in 2021 and Beyond

Companies expect procurement professionals to handle supply chain risk management. Here’s how to protect your company in 2021, and how it will define your career path.

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It’s no secret COVID-19 changed the role of procurement forever. Companies now expect their procurement teams to take a much more strategic position, especially when it comes to risk management.

Just in 2020 alone, procurement teams navigated:

• Natural disasters 
• Cyber security breaches
• Financial risk, due to suppliers & buyers hit by extreme supply and demand fluctuations caused by COVID
• Operational risk, caused by COVID lockdowns 
• Geopolitical risk 

And that’s on top of a health crisis. How will you tackle the responsibility to help your company prevent, mitigate, and recovery from disruption? Especially when the risks seem to ramp up every year?

Identify the risks

It starts by identifying the risks, and how they could affect your company. 

After all, widescale disruption isn’t an “unprecedented” event. McKinsey research shows supply chain disruptions lasting longer than a month happen every 3.7 years. 

Since disruption is guaranteed, you need to know your suppliers and your suppliers’ suppliers. 39% of those we surveyed said they were blinded by a lack of supplier and geographic risk.

That’s why you should start analysing risk using three timescales: crisis (immediate), recovery (short term), and new normal (long term). Risk expert riskmethods says that’s the most effective way to detect problems earlier and respond more quickly.

How do you know which risks pose the greatest threat? It all depends on your company, says McKinsey: “The risk facing any particular industry value chain reflects its level of exposure to different types of shocks, plus the underlying vulnerabilities of a particular company or in the value chain as a whole.”

“That means you are in the best position to assess risk for your particular company,” says Justin Crump, CEO of internationally renowned Risk advisory firm Sibylline. 

“Procurement functions are well placed to understand the world and the organisation, and so have a vital part to play in making sense of it all,” Justin says. Too often, companies say to him, “Tell me what I need to know.” 

Instead, “the more you can work out what you care about in the world, the better off you’ll be because you can focus resources there and cut through the noise,” Justin says.

What about the data?

Finding useful knowledge isn’t as complicated as you might think, as Justin explained at our 2019 Big Ideas Summit.

“Becoming good at intelligence is actually quite easy,” Justin says. “It’s about having an effective process to take information that exists all around us, and turn that into something you can use – actionable insight.”

Even still, the volume of information out there can be intimidating. That’s why technology can help you get there even faster. 

As IBM’s Takshay Aggarwal recently explained: “Think of how long it would take you to analyse a million rows in an Excel spreadsheet. A week? A month? Longer? Yet for new technology, like AI, a million rows in Excel is nothing. That means it will be quicker and easier to extract meaningful data.”

This is the perfect opportunity to consider how new technologies can help you predict future problems.

The number one technology regret during the pandemic was failing to invest in supplier risk and management technology, according to our How Now report.  

Such technology can analyse a huge amount of data from different sources in real time – like weather patterns, satellite imagery, and political conflicts – and make correlations quickly. Be more resilient in the future by investing in the right technology now.

Think long term

This is also a great time to consider broad-scale planning, and integrating risk concerns into your supply chain strategies.

For many organisations, this means adding more buffers – shifting from “just-in-time” to “just-in-case”. 

As IBM Lead Partner Takshay Aggarwal puts it, “You can cut and cut the fat to the bone, but when you need to run, where is the muscle?”

That built-in ‘fat’ is the key to resiliency, Justin Crump explains. 

“Once upon a time, there was redundancy in supply chain,” Justin says. “There was depth in supply chain. That’s expensive so it’s been engineered out. The problem with efficient stuff is it’s very prone to disruption.”

But as we all saw in 2020, it’s worth the cost to build in redundancy and prepare for disruption. As McKinsey puts it: “Taking the time to identify, prequalify, and onboard backup vendors comes at a cost. But it can provide much-needed capacity if a crisis strikes.”

Such supplier analyses could bring other benefits, like reducing carbon intensity, improving labor standards, and offering more opportunities for women- and minority-owned businesses, McKinsey says.

Define your career

Risks are inevitable. But you are in the ideal position of identifying, assessing, and mitigating those risks. 

Your preparation now could mean the difference between temporary disruption and bankruptcy for your organisation. McKinsey says over 10 years, companies should “expect disruptions to erase half a year’s worth of profits or more.”

As Justin puts it: “The process of examining yourself and examining the world, within a cohesive framework, gives a stable way to reference what is changing in your environment and therefore highlights both risks and opportunities.” 

Your ability to manage risk will have enormous influence on your company’s resilience. Not only that, but those skills will define your career path. Step up, get the right risk management strategies in place, and reap the benefits for years to come.

Join renowned risk expert Justin Crump on 25 February to learn about the most pressing risks of 2021. This masterclass is exclusively for Faculty Roundtable members. Learn more or register now.