3 Ways to Improve Your Supply Chain Risk Management Strategy
We can’t just get our own house in order. We need to help our suppliers’ suppliers if we want a truly resilient supply chain. Procurious gets expert advice from riskmethods’ Bill DeMartino
How can companies of any size manage the huge number of risks in any supply chain?
Procurious Founder Tania Seary recently sat down with Bill DeMartino, Managing Director of North America at riskmethods, to find out about risk and the future of procurement.
Become resilient or lose credibility
The word of the moment is definitely resilience. But where do you start?
Bill says it’s a process. Not long ago, most organisations were hunting for better information to react faster as threats emerged.
“So this is what I would really categorise as being reactive,” Bill explains. “We want to get better at reacting to events (which is a fantastic place to start by the way) and what I would think of as the journey to resilience.”
The pandemic obviously changed many companies’ perceptions of their own resilience.
Yet he points to data that we’ve seen a 300% increase in disruptions of all kinds over the past three years.
“That means that for organisations who weren’t before acting the mandate is clear; this is the responsibility of supply chain leaders,” says Bill.
“If they are unable to deliver on this responsibility, they’re going to be losing credibility within the organisation.”
The good news is senior management is recognising the importance of proactive supply chain risk management, which will likely lead to more funding.
Treat suppliers better
So we’re all after resilience. But what does that actually look like?
It starts with a shift in the way companies treat and manage suppliers, Bill explains.
“I think we’re on the precipice of moving into what I would call the era of collaboration,” Bill says.
“Traditionally, we’ve seen working with most of our suppliers in kind of a generic manner and we treat a few of them very specially.
“But I think that collaboration needs to extend to a broader set of enterprises and so that continuum will continue to be a major transformation element.”
From reactive to transformative
Changing the way we see supplier relationships is a good step, but it’s only the start.
Once an organisation can react quickly and be more resilient, it’s time to transform. That’s why the most mature and forward-looking organisations are overhauling their processes right now.
“Transformation is not just enough for me to figure out how to be reactive, but I really need to think more proactively on how I can change the elements and the way that I think about the category,” says Bill.
These advanced organisations are asking how well they understand category risk exposure. And how they can incentivise people to act on the risks they uncover.
“So it’s really more of a holistic approach to risk resilience,” says Bill.
Automation frees up resources
The other hot topic is automation. Bill says it’s incredible how much of our supply chain can be automated.
“Supply chain folks are just automating everything that they can and it’s crazy,” says Bill.
“We’re trying to automate all the AP functions, we’re trying to automate all the contract functions, and now we’re actually moving up into the next level and trying to automate the analysis in the diagnosis of the data and the information and insights in those systems.”
“[W]ith this automation we’re able to free up the scarce resources and get our folks to focus on some of the proactive resilience and collaboration efforts they really need for the organisation to thrive,” says Bill.
Risk management in today’s environment
What does great risk management look like today?
Bill narrows it down to three priorities:
1) Change jobs descriptions and incentives. You need to think about culture change.
2) Put in place technology that can standardise processes, then measure them.
3) Manage your people well. Ensure that staff are actually following those processes in the way you expect.
“That’s the shift in the maturation that we’re seeing from our customers. Before, they would just get the information. Now they are working out how to best utilise that information and become proactive in their risk approach,” says Bill.
Minimise risk, no matter company size
You might be thinking, “That’s all well and good, but I work for an SME. How does that work for a smaller company like mine?”
And it’s true. You may not have the resources or capability at the moment with everything going on, says Bill.
“A lot of smaller organisations are so busy just keeping the business going, no one is taking the time to take a look back and actually think about what it’s going to be in three to five years out,” says Bill.
“They’re just worrying about survival today.”
Even if your organisation is small, you’ll likely notice a rising interest in risk management – whether it’s from your customers and executive team.
“Customers are asking them, potentially assessing them and looking to measure them in terms of their risk preparedness so that’s definitely helping [put risk management on the agenda],” Bill says.
“We are also starting to see a really strong sense of awakening from [senior leaders] and with the idea of a supply network.
“[They’re] thinking it’s not just enough for me to take care of my house, but I need my suppliers to also do the same for theirs.”
What can you do?
So whether risk management is at the top of your agenda already, or it’s just starting to gain importance, Bill suggests three key areas to get your house in order.
1) Using technology to manage risk: “There is an enormous amount of information that’s out there and the largest challenge that organisations have is how to filter through that information and uncover specific and relevant insights.”
2) Make risk information visible: Can people in your organisation easily find information about risk?
“We’ve seen a lot of folks who create risk scorecards or risk audits, and that information gets locked away somewhere,” says Bill.
Instead, he suggests putting that information on your employees’ phones and laptops so they can easily access it when they’re talking to suppliers.
3) Integrate: The final step is to embed all of that risk information and data into other company systems.
As a supply chain professional, Bill says you should ask, “How can I integrate the technology and make it something that really impacts the way that we work?”
Going forward
Now that risk management is firmly on the agenda, you can use it to get ahead in your career.
Bill predicts the most valuable procurement professionals in the future will be able to manage risk in two ways.
The first is artificial intelligence. Companies will need people who can use AI to spot patterns in suppliers to predict future events.
“For example, if a supplier shutters a plant and fires the CFO, I could predict a bankruptcy is coming and reorganise my supplier geography to avoid disruption,” says Bill.
“We can utilise artificial intelligence techniques to start doing pattern recognition and help folks better predict – never with 100% accuracy – but better predict what may be coming down the pipe for them.”
The second is to make suggestions on the best way to react if a threat actually comes to fruition.
“There’s a number of different approaches that we’ve seen utilised to respond to an event, so we can bring all that information together and present to the individual in a way that allows them to very quickly assess their options, make decisions, and run.”
Bill DeMartino, Managing Director of North America for riskmethods, can be heard in the webcast series The Future Of Supply Chain Now.
How can you limit supply chain disruption and proactively plan for market shifts? Check out this IBM report to find out.
