Businesses operate in an increasingly unpredictable world, in which the risks they face are many, varied and sometimes catastrophic. One need only recall the past two years to realise this.
Above and beyond the pandemic, there is risk associated with changing social priorities - such as those around environmental, social and governance (ESG).
Here, there is the risk of reputational damage arising from ESG transgressions in the supply chain, which can be large and complex. Unless a business is meticulous about vetting third parties, then it might unknowingly be supporting human rights abuses, modern slavery and environmental damage.
There is also cyber risk. This is a growing concern, because cybercriminals increasingly see supply chains - with their countless upstream and downstream vendors - as a back-door hack into high-value corporate targets.
Then there is Mother Nature, and her increasingly violent mood swings. As climate change generates increasingly more serious weather events, the danger of supply chain disruption - from floods, hurricanes and other natural disasters - also rises.
“Then there is geopolitical risk, posed to supply chains by events such as war and social unrest,” says Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply (CIPS).
With 100,000 Russian troops camped on the Ukrainian border, Brock’s is a timely observation.
Brock adds that for any organisation, financial risk is another significant danger facing firms. “A supplier’s ownership structure, revenue and growth outlook, as well as major product release delays, can signal fundamental issues with operations, and the future risks that company is likely to face,” he says.
Agreeing with Brock is Jim Bureau, CEO of JAGGAER, a US-based provider of cloud-based business automation technology
“Bribery and corruption can occur throughout the sourcing and contract management process,” Bureau says. “By placing strict controls and guidance in place businesses are less likely to be exposed.”
Brock, meanwhile, reminds us that sometimes a combination of risk factors can gang up to cause chaos.
“Supply chain disruption can come about through a combination of risks, as was the case with the Suez Canal blockage, where you had human error, technical failure and strong winds,” he says.
How can organisations mitigate against procurement risks?
Supply chains are becoming more complex, and often contain thousands of third-party vendors. This means managing the chain can be a huge challenge. Industry 4.0 tech - such as the Internet of Things - is helping on this front.
“In the past, risk management was more of a reactive process,” says Bureau. “Procurement could draw up contingency and action plans, but they had too little visibility to be anywhere near proactive enough, especially beyond tier-one suppliers.”
Until recently, procurement’s focus on cost reduction - by minimising inventory and just-in-time delivery - resulted in limited wriggle room for organisations to deal with the impact of serious supply chain disruption.
“True resilience requires a 360-degree view of your supplier ecosystem,” says Bureau. “Procurement should know who their organisation is doing business with. They need to know their vulnerabilities from every possible angle – quality, value, diversity, compliance, financial health, ESG, and performance.”
Yet many businesses struggle to achieve this level of visibility, especially across multiple supplier tiers. This is where data and technology come into play.
“Many of the simple transactions in today’s supply chains are managed by automation,” says Brock. Some companies are even using artificial intelligence for sourcing decisions.”
While technology can provide value to organisations, offering global and real-time visibility on suppliers and associated risks, Brock warns it’s important companies appreciate that nothing comes without risk.
He says: “Technology comes with its own dangers, for example. Systems can be hacked, and vital information lost, or money stolen.
“As the world’s business systems speed up, we can’t afford to not use digitalisation in supply chains - not just from a risk standpoint, but also to get a competitive edge on competitors.”
He adds: “However, it’s essential organisations have good-quality data and supplier information, otherwise they’ll never fully understand the potential risks they face.
Five risk and resilience technologies in procurement
- Artificial intelligence is increasingly being embedded into procurement platforms. It offers actionable and predictive insight, enabling procurement to mitigate disruption and make data-driven decisions.
- Predictive analytics can identify likely late deliveries even before an order is placed. It does so based on previous events.
- Prescriptive analytics help teams proactively mitigate the risk of late deliveries by leveraging a variety of supply sources.
- Embedded intelligence learns from human buying patterns, to automate end-to-end, human-free procurement.
- Enterprise commerce platforms bring buyers and suppliers together on the same network. They align buyer needs and supplier capabilities and integrate with outside solutions, to create a single data ecosystem.
Is there a skills gap in risk management?
A recent CIPS survey revealed that 49% of procurement teams struggle to find the right talent.
“There’s always a shortage of talent in procurement,” says Duncan Brock, Group Director at CIPS.
This is certainly the experience of JAGGAER CEO, Jim Bureau, who says: “In recent years we’ve seen a severe procurement talent shortage in many industries. One of the reasons is frustration and burnout, due to working with technology that is out of date, and unable to help teams address today’s challenges.
“It’s draining when risks and disruptions make work a constant challenge, and a monotonous work routine gets in the way of being able to drive forward more-rewarding and strategic projects.”
JAGGAER’s technology is helping address this problem, explains Bureau, by eliminating routine tasks through automation. “This enables procurement professionals to focus on more strategic activities, such as managing and mitigating risk - all of which is supported by analytical software,” he explains. “This, in turn, makes procurement a more attractive career option for young talent.”
Brock observes how risk has always been an ever-present factor for procurement and supply professionals, and that it always will be. “It’s just that the nature of those risks change every now and then,” he concludes.