For supply chain experts, COVID-19 may well become a historical flashpoint for innovation, sparked by the grim reality that what we don’t know can hurt us big-time.
According to Jeramy Ivener, global vice president of Customer Adoption and Engagement for SAP Ariba, only six percent of organizations have full visibility across their supply chains and, even more worrying, up to 60 percent of small businesses do not reopen after a disaster.
Anyone reading the worsening news about the pandemic’s impact does not need more bleak statistics. There is an opportunity for businesses to reduce vulnerability as regions move out of the crisis and into what experts predict will be a long recovery.
“During this crisis, companies with a holistic view of their supply chain are assessing, monitoring, and mitigating risks much faster to guarantee business continuity,” said Chris Wang, senior director of Product Marketing for SAP Ariba Supplier Risk. “Replacing disconnected, manual processes with an intelligent, automated technology solution is also saving these organizations valuable resources.”
The truth is that the pandemic is just one of the things on a long list of what could possibly go wrong for procurement in an increasingly volatile and intertwined world. COVID-19 shot to the top of the worst that could happen, but other events threaten at any time, from natural disasters and trade wars to sanctions and cybercrime.
In a video session at the virtual SAP Ariba Live event, Ivener and Elizabeth Harris, director of Global Customer Adoption Strategy for SAP Ariba, shared four steps organizations can take to reduce supply chain risk.
Step 1: Analyze Supplier Data for Improved Decisions
Solid business decisions about the risk factors in any supply chain require real-time data about potential and future risk signals from suppliers. Every organization needs a complete view of not just contracts, invoices, and open purchase orders, but also all internal and external factors that signal financial, operational, regulatory, environmental, and social risks emanating from the supply chain.
“Organizations need insights to assess past and future risk factors at each decision point,” Wang said. “You may want to add specific contract terms based on the supplier risk signals you receive during the sourcing and contract process. You may decide to extend payment terms if you receive signals that a supplier is facing unexpected problems from crises like COVID-19 or continue seeking originally agreed-upon discounts.”
Step 2: Identify At-Risk Suppliers
With real-time insights, companies can identify at-risk suppliers and make better decisions to head off potential problems. For example, SAP Ariba now offers customers individual supply risk “disruption exposure” reports and consultations at no cost. These reports combine data from numerous external agencies and research experts covering a range of finance, health, and logistic topics, along with SAP’s risk insights and open purchase order information from each customer on Ariba Network.
“This helps customers pinpoint exactly where their at-risk suppliers are, what problems they have or will likely encounter, and which orders and shipments are impacted,” Wang said. “With this data, they can take proactive steps to keep operations running – whether it involves raw materials, labor, transportation, or other factors.”
Step 3: Find Alternate Sources
While finding new suppliers for many items is top-of-mind during the current pandemic, experts predict ongoing demand and supply “shocks” over the next year and maybe beyond. That is why companies need reliable information to understand their suppliers at all times.
“Risk insights are not only valuable during times of crisis,” Wang explained. “For instance, organizations committed to sustainable business need to partner with companies that practice equal opportunity employment, don’t use child labor, and have the least environmental impact. Bad supplier behavior can quickly tarnish a brand’s reputation.”
Step 4: Monitor At-Risk Suppliers
Since risk constantly evolves, companies need to keep a close eye on the entire supply chain, using alerts and insights to guide business decisions from source to purchase and payment. Leading companies constantly track risk signals worldwide, often using artificial intelligence (AI) and machine learning to help generate compliance checks and automatic alerts relevant to the businesses they serve. Bringing all this information together allows teams company-wide to collaborate on tracking, reporting, and mitigating supply chain risk.
Managing supplier risk is fundamental to managing supply chain disruption. While that was true before the pandemic, it will be even more crucial for business continuity and brand protection in the future.