Wednesday, May 5, 2021

Organizations Must Accord High Priority to Effectively Handling Supplier Risks

The supplier universe has evolved over time with organizations sourcing goods and services from suppliers separated by geographies, different time zones, diverse cultures, different geopolitical situations, and regulations. 

The expansion of the supplier universe is a far cry from decades back when suppliers of various organizations were located in close proximity and working relations were based purely driven by trust. The rapid globalization over the years has made supply chains more interconnected, which has led to increasing complexities within the supply chain.

Complexities across global supply chains have significantly enhanced supplier risks. Organizations are now wary about supplier failures as they can have major ramifications. Supplier disruptions such as natural disasters, economic crises, geopolitical risks unforeseen incidents at plants, labor disputes, etc. can not only hurt the profitability of organizations causing losses running into millions of dollars but also trigger reputational damage. The scourge of Covid-19 brutally exposed the vulnerabilities of suppliers and underpinned a pressing need for organizations to build agile, resilient, and future-proof supply chains.


Clearly, supplier risks are a critical issue that needs to be addressed by organizations. Over the years organizations owing to a lack of robust processes have been struggling to identify and successfully manage supplier risks. Over time organizations have counted on analytical models that leverage only historical data to assess supplier risks and failed to provide a warning about potential threats. This explains why organizations have not been able to effectively mitigate supplier risks. The need of the hour for organizations is to adopt a risk intelligent approach, wherein they proactively mitigate avoidable risks, and gear up with effective response strategies to counter unavoidable risks. 


Organizations will do a lot of good to themselves if they obtain accurate information about suppliers’ key performance indicators such as on-time delivery, uninterrupted supply of raw materials, supplier defect rate, compliance rate, purchase order accuracy, etc and accordingly, segment their suppliers based on various criteria. Such a threadbare supplier assessment exercise can help organizations come up with efficient supplier risk management strategies to minimize disruptions, as well as steer clear of monetary and reputational damages.


An effective risk management strategy cannot be a way forward for organizations without leveraging analytics. Analytics help organizations anticipate a possible disruption. Even if any unforeseen event cannot be predicted, it can sound out the fastest possible alert for a company to initiate necessary action and cushion itself from a potential disruption. This is where Predictive analytics comes in handy for organizations – it analyses large volumes of data sourced from across the business by applying hundreds of variables. Predictive analytics enables organizations to take suitable decisions based on the potential scenarios offered by analytics and ensure that their supplier ecosystem stays healthy at all times.


Effectively managing supplier risks is easier said than done. However, a proactive strategy well-armed with analytics-backed improved response measures can help organizations stay alert and skirt unforeseen supplier risks or at least minimize them.

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