Today’s guest post is by Brian Daniels (
brian <dot> daniels <at> cvmsolutions <dot> com), VP of Strategic Marketing at CVM Solutions, a sourcing and procurement content and application solution provider to mid-market and large enterprise companies, including half of the Fortune 500.
In 2007, North American companies began to wake up to the dangers of supply risk. From the bankruptcies of a number of “big name” tier one automotive companies to the scandals of lead painted toys and tainted eels – just to name a few items – hitting the North American shores from China, supply risk changed from theory to reality for many companies. But twelve months later, are they any better prepared to manage supply risk? In many cases, the answer is no. Many companies are just beginning to think about what putting a supply risk management program into action means. In my view, this requires stepping back from some of the news headlines to better understand the specific types of risk which could have the greatest impact on your particular organization.
For example, while quality and labor issues dominate the news when it comes to China-sourced products, in many cases, it is total cost risk and supplier performance risk which should be of greater concern for companies doing business in the region. Consider how the chance of a change in currency value or tax/tariff/import regulations could create significant risk in the savings models that led to a global sourcing decision in the first place. Perhaps the most common risk we see in global – and even local – sourcing initiatives comes down to on-time performance. To this end, on-time performance is not just when an item leaves a factory, but when it arrives at your loading dock. On a global basis, there’s a lot that could go wrong in the weeks this process takes. But in my view, building visibility into past supplier performance – including on-time delivery – is critical to predict and model future supply chain performance – both locally and globally.
Another risk many companies fail to fully consider is their suppliers’ overall financial and corporate stability. Checking a Paydex score or third party credit rating alone is insufficient to develop a complete perspective into whether or not a supplier will be able to stay in business to meet your organization’s continuing needs. Taken alone, these analyses represent a point-in-time snapshot based on information which may or may not be accurate (and timely). These approaches should never replace expert-driven analysis and the direct verification of financial and other information with your suppliers. In my view, it’s essential to conduct customized and expert financial risk assessments based on metrics which matter most to your organization prior to contracting with a supplier. Furthermore, risk assessments should be part of ongoing monitoring and risk forecasting.
In addition, if supply risk information is managed and analyzed within silos inside a procurement organization, it’s critical to insure that this information is available to the rest of the company – or at least to those individuals who need it the most – whether it is via a portal-based system that provides proactive alerts and insights to front-line managers, who can develop mitigation strategies and approaches, or some other mechanism. Some companies and providers might call this supply risk “dashboarding”, but the name is not important. The key is to make sure that these information sources provide the right level of information to the specific individuals who can make a difference if they’re brought into the supply risk loop in time to intervene before a preventable risk rears its ugly head.