Several procurement functions look on supply chain disruptions as something that will happen to another, perhaps less mature, less proactive, or even just plain unlucky business and procurement function. In reality, however, it is not a question of ‘if’ but ‘when’ disruption will occur as it is less of a potential risk and more of a near-certain hazard.
In recent months, global headlines have been packed with stories of disruptions to the supply chains of some of the world’s most recognisable brands.
Back in April, production at Toyota, Sony and Honda was stilted after they were unable to source key components in their supply chains following damage to supplier factories in the Japanese earthquake. In July, General Motors warned of the risk of severe disruption to its North American supply chain after one of its critical parts suppliers filed for bankruptcy, threatening to render its contracts and the promise of delivering these crucial car parts obsolete.
These are just some of the global, seemingly stable and advanced companies to which supply chain disruption has recently become all the more real. Large disruptions to the supply chain, such as these, can impact the share price of a company by a staggering 7%, according to the World Economic Forum – not an issue to be sniffed at.
While there is no denying that some of these disruptions are more difficult to anticipate than others, there are many ways to avoid these pitfalls and mitigate these risks, some of which involve turning to the latest and greatest in technology.
Supplier management tools and platforms can do a whole lot more than just keep tabs on supplier activities and ethics.
Creating a two-way conversation between the supplier and the function provides the capability to identify risks arising at a stage when they can be mitigated, before they escalate into a catastrophic disruption. The real risk is to ignore a small-scale issue communicated by a supplier or fail to provide a platform to connect with them in the first place, as then, before you know it, it becomes a big problem, deliveries are compromised and relationships have soured.
Supplier data is a big deciding factor when determining whether a supplier represents high risk or high quality.
Yet when much of the data gathered about suppliers is actually self-gathered, there is a question hanging over its reliability.
Even third party data gathering throws up its own issues. As reported in Procurement Leaders’ latest Guide To Supply Risk, third party data suppliers are often reliant on old financial statements, and this is largely seen as a ‘backward looking’ approach.
Thereby, access to a wealth and breadth of secondary data is all the more important.
This is where the emergence of predictive analytics and big data can step in as the best foot forward for calculating risk and conducting more advanced vetting of suppliers. Once big data is collected the key here is to make sure the function has the tools to sift, separate and analyse this plethora of data into quantitative scores.
There is no doubt about it that supply chain disruption is coming for the procurement function. Geopolitical risks, from the Brexit vote putting a strain on currency fluctuations and in turn supplier finances, and risks of natural disasters damaging supplier factories in the case of the El Niño phenomenon, continue to take centre stage.
In the advent of increasingly sophisticated automation tools, technology is often seen as a threat to human interaction. Yet, in the case of relationships between businesses and suppliers, the role of technology is best looked on as an enabler rather than a replacement.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.
SAP Ariba will be hosting a panel discussion about supply chain disruption at Procurement Leaders’ East Coast Forum on 13-14 September at the State Room in Boston. The forum will also explore topics such as supplier-enabled innovation, big data and positioning procurement as a strategic business partner. Visit the website for more details and to download the agenda