Tag Archives: procurement risk management

Automation: Who Says You Can’t Manage What You Can’t See?

If your business is engaged in international commerce, you’re probably struggling to toe the line with supplier risk management. Automation, alerts, and third-party data are your best defense.

Managing supply chain risk is no walk in the park. Exogenous events like the recent terrorist attacks in Barcelona have drawn attention to the EU’s rules to combat terrorism financing through stricter anti-money laundering (AML) regulations. These rules impact many companies that are increasingly added to the law’s scope: possibly yours.

Meanwhile, modern slavery violations can surprise even the most astute contract or supply chain managers who may have unknowingly relied on invalid or falsified information. In the U.K., The Modern Slavery Act 2015 includes a Transparency in Supply Chains clause, which requires companies operating in the U.K. to address modern slavery in their supply chains. If you’re at a big company, you’re probably on the hook to comply.

Once you add in the more common types of risk, such as the financial or credit health of your suppliers, changing markets, and natural disasters, the sense of how challenging it is to manage them all—in the age of digital disruption with fast-paced change and volatility—can quickly become overwhelming.

Fortunately, there is technology and automation to help you maintain control, gain visibility into your supply chain, and mitigate much of these risks. The right technology can help you proactively steer your organization clear of minefields that can damage everything from reputation to sales. And it’s only getting better.

 Start with real-time monitoring and alerts

The first step is to identify the most likely disruptions to the supply chain, like a natural disaster or a work stoppage at a supplier’s supplier. One way to deal with this type of risk is with real-time monitoring. Real-time monitoring of your suppliers means that you can receive an alert whenever there is a potential for disruption. Such alerts can help you find an alternative source of supply, maintain production, and avoid missed deliveries or even a plant shutdown.

Real-time alerts should be an extension of an overall solution consisting of a platform and business network. This is the ideal foundation to set up, monitor, and manage a portfolio of suppliers to ensure that all essential documentation about labor practices, certifications, certificates of insurance, and so on, is in place before you start doing business.

Integrate third-party data sources

Documentation and data about your suppliers can come from many sources, not just what you gather during an onboarding, contracting, or surveying exercise. There are plenty of third-party sources that have standalone solutions and open APIs or integrations into supplier management platforms that let you address various dimensions of supplier risk and to set up corresponding alerts.

If your company is engaged in trade and has a 10,000-euro or more money transfer in any way, it will need to comply with the EU 4th AML Directive. In addition to digitally onboarding your supplier base, you may want to automate KYC / KYB (know-your-customer, /-business), AML (anti-money-laundering), and EDD (enhanced due diligence) requirements. These steps will help you comply with the directive

One provider that is using cutting edge technology like distributed ledgers is Austria-based Kompany. Their counterparty verification data allows users to streamline the supplier verification process at the point of onboarding (and continually) with up-to-the-minute alerts on any material changes to supplier vitals. Their information comes directly from the commercial registers. Kompany even includes PEP (politically exposed person) screening and sanction lists.

Who says you can’t manage what you can’t see?

Other popular sources of company and industry data include Moody’s (credit ratings), EcoVadis (sustainability scorecards and ratings), riskmethods (transparency into risk exposures in 1-n tier supply chains), and Made in a Free World (visibility into modern slavery), to name a few. These data sources can help you continuously monitor for risks and evaluate your risk portfolio during the sourcing process.

Through technology and regulatory technology systems like those described above, you can design an automated, customized, and intelligent risk management strategy. In turn, this can boost trust between you and your suppliers and you can plan more confidently in an environment full of uncertainty.

Facts not Fear: The Impact of Brexit on US Business

Institute for Supply Management (ISM) CEO Tom Derry tells Procurious that people need facts, not speculation and fear, when it comes to understanding the impact of Brexit on US business.  

Brexit US Business

ISM took the unusual step this month of releasing a supplementary Report on Business, focusing specifically on the impact of the UK’s Referendum on EU membership on US business.

The decision was prompted by a flood of enquires from US business and media representatives about whether the data for this month’s highly anticipated and influential report would reflect the fallout from Brexit.

“We decided to go back to our panel of over 600 procurement professionals with a tailored series of questions about the net financial impact of Brexit on their organisations”, said Derry.

“More importantly, there has been an enormous amount of speculation about the impact of Brexit, fed by a sense of unease and uncertainty. ISM was in a position to gather real data and put the information out there so businesses can make informed decisions based on facts, rather than fear, concern or emotion.”

Negligible Impact

The report will serve to dispel much of the speculation around the impacts of Brexit on US business. The vast majority of those surveyed reporting that Brexit will have a “negligible” impact on their business. Only one in three thought their firm would be negatively, or slightly negatively, impacted.

The main concerns for those who do anticipate an impact include the exchange value of the dollar, changes in demand globally, financial market uncertainty, and currency movements.

“The report demonstrates that despite the speculation, the majority of US businesses feel that Brexit will have a negligible impact”, says Derry. “This is because the US has a comparatively low export economy at only 13 per cent of GDP, so we are relatively insulated from the impacts of currency movements and global demand. We’re not a huge commodity exporter, although the strength of the dollar is of course a concern for those who are in the exporting business.”

Derry says that in the short-term, trade relationships are stable. “For US firms doing business in the UK or EU, very little has changed. For now, we’re good – business is predictable, and we love predictability and certainty.”

Future Investment Shift

In the long-term, however, US businesses may not choose to invest additional dollars in the UK. Historically, a lot of companies (such as car manufacturers) have used the UK as their port of entry into the EU, due to its shared language and talented workforce.

Derry added, “That option may no longer be so attractive, and discretionary investment will probably shift to Eastern Europe – Poland or the Czech Republic – to have a presence within the EU, and take advantage of low-cost labour.”

Derry says that the Brexit referendum is a historical event. However, in 10 years it is likely to be seen as a political decision, rather than an economic one. “The ‘sky is falling’ scenario is certainly overdone”, he says. “I don’t think we’re going to see the fracturing of the EU over Brexit.”

“It’s important to keep our vision focused forward. As supply management professionals, we work in the global economy and a major shift, such as Brexit, forces each of us to recalibrate our global supply strategies and trade relationships. The EU is the largest single market in the world – we can’t ignore it.”

Click here to read the supplemental ISM Report on Business: Brexit Report.

Why Supplier Segmentation Can Aid Risk Mitigation

Supplier segmentation could prove a useful tool for procurement in aiding risk mitigation in the supply chain. Sandeep Singh of Genpact explains.

Supplier Segmentation

In the first part of this series, we looked at the role of procurement plays in risk mitigation. In this article, Sandeep Singh, Vice President – Procurement and Supply Chain Services at Genpact, offers further advice on risk mitigation strategies, as well as how to create effective supplier segmentation.

What are good mitigation strategies for global supply chains in light of high impact factors like natural disasters and political instability?

To anticipate, prevent, and manage adverse events throughout their operations, global enterprises need enhanced visibility of their third-party risks. They need more efficient risk assessments to support targeted mitigation strategies, and the ability to predict potential outcomes throughout their operations.

Some of the mitigation strategies could include:

  • Having access to a list of risk assessed, qualified suppliers, who can serve as an alternate source of supply in case of an adverse event.
  • As part of a supplier selection process, adopting a multi-supplier strategy, where suppliers are located in multiple geographies, or where one supplier may have an ability to ship from multiple locations.

These mitigation strategies can easily be created by analysis of past trends and through leveraging digital technologies.

To increase the likelihood of third-party risk management (TPRM) initiatives achieving expected outcomes, organisations can adopt a Lean Digital approach, combining digital technologies, design thinking methods to focus on the end customer, and Lean principles that offer greater agility.

This approach tightly aligns risk processes to business outcomes, and helps overcome the challenges from legacy operations. This is done by driving the right choices end to end, rather than focusing on the individual parts of the process.

What is a good process to follow when carrying out supplier segmentation for risk management?

Multiple product or services, complex data structure and taxonomies, large supplier base across the globe and changing regulations makes supplier segmentation by risk a complex process.

Leading companies are increasingly relying on data-driven digital solutions, powered by the right set of business rules to conduct risk segment. The Lean Digital approach can make risk segmentation more efficient and effective. Typically to arrive at risk segmentation of suppliers, organisations can follows two broad steps:

Step 1

Segmentation based on:

  • Category or type of product or services suppliers are delivering or will deliver – an office stationery supplier may pose no risk, as compared a supplier providing IT services, or a supplier providing raw material for the manufacturing of an end product.
  • Location of supplier – a supplier located in a developing country can be prioritised first, as compared to suppliers located in developed countries.
  • Nature of supplier relationship – how strategic or critical is a supplier to an organisation’s business. It may be more sensible to focus on suppliers with a long-term engagement, versus a one-time purchase.

Step 1 can also be taken to understand and manage inherent risk. It can help organisations prioritise their needs around risk, and can save lot of time, effort and investment into managing risk.

Step 2

Organisations can assess suppliers’ relevant risk dimensions leading to their segmentation as low, medium or high risk. Risk dimensions, such as anti-bribery and corruption, and data privacy, need to be mapped with the category, or type of product or services, that supplier is responsible for delivering.

Further, a scoring methodology should be created, taking into consideration category and location of supplier, and then connecting it to an applicable risk dimension.

This scoring methodology should also consider weightings across various risk dimensions, so that the final output is a comprehensive risk score which can then be used for supplier segmentation into low, medium and high risk brackets.

Are there examples of good practice in supplier segmentation by risk, where organisations have mitigated their risks?

There is a good example of this through some of the work that Genpact has done with clients in the past. One pharmaceutical company wanted to improve its ability to assess its thousands of vendors and partners, particularly as regulators were taking a greater interest in third-party risk management.

The firm lacked standard processes for supplier risk management, could not provide timely or accurate risk reports, and could not keep up with the volume of assessments required. Genpact transformed the pharmaceutical firm’s TPRM operating model by defining and executing a scalable, five-step process for assessing third parties against its standards of excellence.

The organisation also introduced metrics, data-driven process management and technology to industrialise the process. This enabled more accurate and timely reports, reduced assessment cycle times by up to 40 per cent, and increased coverage to assess close to 100 per cent of the company’s third parties over a certain level of spend.

Genpact offers a number of procurement services that can be tailored to specific client needs, including end-to-end Source to Pay (S2P) services for both direct and indirect materials. Find out more by visiting their website.