51% of Companies Don’t Understand (Supply Chain) Risk

Yesterday, Aberdeen released their latest supplier performance and risk management benchmark report, Supply Risk Increasing While the Market Stands Still, which found that although two thirds of the organizations surveyed expect supply risk too increase, only 49% of organizations have bothered to implement a supplier performance measurement and risk management program. That tells me that at least 51% of companies do not understand risk, for if they did, they would be doing something about it.

The study found that there is direct correlation between the length of time a supplier performance and risk management program has been in place, the percentage of the supply base measured, and the positive results enjoyed by the organization. Moreover, best-in-class companies, which (i) have had programs in place for at least three years, (ii) measure 51% or more of their supplier base, and (iii) engage in supplier performance management and risk management in the supply base 70% of the time achieve:

  • 92% effectiveness in product and service quality
  • 91% on-time-delivery
  • 87% price competitiveness
  • 85% service and performance capability

Best-In-Class companies surpass their peers in pretty much every way.

  • 43% have instituted cross-functional teams of key stakeholders
  • 68% have instituted a structured performance and risk management program
  • 55% more supplement basic tools with more complex financial risk mitigation strategies
  • 57% use supplier performance systems, 54% use supplier databases and rating systems, and 48% use supplier market research and intelligence

In addition to pointing out some key differentiators, the report also overviews a number of enablers that can help a company that wants to achieve best in class status. These include:

  • Supplier Scorecarding and Reporting
  • Automated Calculation of Key Supplier Performance Metrics
  • System Notification of Performance Issues & Disruption Events
  • Integration with Spend Analysis Tools
  • Reporting of Key Supplier Operational and/or Financial Risks
  • Web-Based Portal for Supplier Self-Registration & Information Maintenance
  • Hedging and Other Insurance Solutions

In addition, they point out the following strategies that can be leveraged for maximum advantage:

  • Re-organization of the supplier performance and risk management initiatives into cross-functional ownership mode among all key stakeholders
  • Re-alignment of focus on supplier performance risk management activities to address customer and regulatory pressures
  • Implementation of a supplier performance and risk management technology layer across all business processes
  • Supply base segmentation on key criteria such as spend concentration, number of available sources per commodity, etc.

This report is definitely worth a read – especially if only 49% of organizations are actively addressing risk.