While cutting costs, increasing savings, and pulling more spend under management is, collectively, a well-worn path for procurement to drive performance, a road less-traveled is through effective supply risk management (SRM). Risk is prevalent in procurement and supply management – economic factors; political and geopolitical events; man-made or natural disasters; acts of war, terrorism, or piracy; environmental, social, and governance issues; contract/legal compliance; and supplier-related risks. Standardizing an SRM program and outfitting it with ultra-modern analytics and reporting tools can help procurement teams gain greater visibility into the different types of supply risk. And with greater visibility comes earlier warning, greater control, and more agility in managing, minimizing, or ideally avoiding performance issues and risks with suppliers or within markets.
Procurement teams that deliberately and proactively manage supply risks uniformly outperform teams that manage risks incidentally and or reactively. Unfortunately, most procurement teams today are neither focused enough on managing supply risk, nor are they equipped with modern business tools to effectively and proactively manage supply risk. This year’s CPO Rising survey research bears this out such that:
* Thirty-four percent (34%) of procurement teams have an active SRM program, while
* Thirty-eight percent (38%) of teams boost their programs with a digital or automated SRM system
For perspective, these numbers lag most other process standardization and automation levels (e.g., 60% of all procurement organizations use a standardized sourcing process across their organizations; 56% of all procurement teams use eProcurement tools).
Best-in-Class Supply Risk Management
When broken down by maturity class, Best-in-Class procurement teams report comparatively greater process standardization capabilities, but only marginally better technology adoption rates than their peers.
* Forty-seven percent (47%) of Best-in-Class teams have an active SRM program, while
* only 40% of these teams have a digital, automated SRM solution.
Clearly, there is significant opportunity for even Best-in-Class procurement teams to enhance their supply risk management programs and take them to the next level — with good reason. The data shows that even modest adoption of SRM solutions correlates with having slightly more visibility into supplier performance and risk. Compared to all other procurement teams, the Best-in-Class report:
* 30% greater visibility into supplier performance and risk
* 66% greater spend under management
* 16% greater savings realized last year
Final Thoughts
As Chief Procurement Officers and other procurement leaders seek to overcome an overall performance plateau, they can look to supply risk management as a lever to advance to the next level. They can also begin to explore other supply risk management technologies that provide greater downrange visibility and situational awareness, enabling better supply risk identification, mitigation, and management.
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