How To Build The Best Supplier Risk Management Strategy
When businesses are hit with a crisis, it can often be the consequence of insufficient risk management. Eliminating risk in the supply chain is impossible, but mitigating it is not. The best supplier risk management strategy relies on having the means to identify risk, map and forecast probabilities, assess risk level, and implement mitigation and resolution procedures.
Typical supply chain risks range from reliability and consistency to a lack of human rights considerations, health and safety concerns, and environmentally unsound practices.
New risks have emerged lately, like legislative measures with a particular focus on sustainability. Other risks include the effects of the pandemic which are likely to linger for a while like supply delays, counterfeit and fraud due to shortages, cargo theft, or shifts in consumption habits.
According to a 2020 survey by Foley & Lardner, manufacturing company executives are re-evaluating their supply chain risk strategies in light of the pandemic. The survey found that:
The deeper and geographically wider the network of suppliers, the greater the potential to be exposed to risks, especially coming from regions lacking strong regulatory oversight. The reality is that most businesses don’t know where all the participants in their supply chain are, generally focusing on Tier 1 alone.
For many, risk management is intimidating and the apparent difficulty to assess and quantify points of failure is discouraging.
The very best approach to an effective supplier risk management strategy is to adopt a uniform methodology that won’t disrupt business operations, won’t add additional manual work on your plate, and adopt the digital tools needed to maximize success.
3 Essential Steps To Managing And Mitigating Supplier Risk
Supply chain risks lurk in many - sometimes unlikely - places, but a sound management strategy contributes to containing their effects. Ignoring risks comes at a high cost. According to Supply Chain Digital, environmental supply chain risks alone could increase buying costs by $120 billion over the next five years, particularly affecting manufacturing, food and agriculture, and power generation.
Here are 3 essential steps to take when creating an effective supplier risk management strategy.
1. Identifying And Documenting Risks
Not all risks will require the same attention. It is important to know which risk or incident will have the most severe impact on your operations, finances, and/or brand reputation.
From there, start gathering data from your suppliers. Since many of them are far down the chain, use your Tier 1 vendors to reach out to their network of suppliers (Tier 2) and so on until you’ve mapped your entire supply chain.
2. Building A Framework
Managing risks requires you to rank them based on three factors:
- What is the impact on the business if the risk occurs?
- How likely will the risk occur?
- How prepared is the organization to handle that risk?
Consistent scoring allows you to prioritize threats and identify the areas posing the highest risk.
3. Ongoing Monitoring
Continuously tracking the risk indicators provides a 360° view of how vulnerabilities evolve in your supply chain (improve or worsen). It allows you to prioritize remedy actions and monitor trends.
With Source Intelligence’s platform, you can set up an alarm-triggering system customized to your organization’s needs and monitor hundreds of indicators, either compliance-related or determined by your strategic objectives, based on the supplier’s location, activity, or numerous other factors.
The Best Supplier Risk Management Strategy Starts With The Right Tools
Now that you have a methodology in place, you need to equip your risk management arsenal with the finest tools, those that make data collection easy, deliver actionable insights, and cover the widest spectrum of risk factors.
Let’s take a look at the different elements of a full coverage risk management strategy with Source Intelligence’s platform.
Conducting periodic virtual audits is a great way to expand the conversation with your suppliers and address issues or questions that may have fallen through the cracks with other methods.
Without the need to send teams on location and spend a lot of money, you can audit key issues such as:
- Regulatory compliance
- Corporate policies or code of conduct
- Workers’ welfare and safety
- Suppliers’ standard practices
- Environmental concerns
- Areas of supply chain risks
- Quality Management
Our virtual audit solution allows you to collect data in multiple categories and designate risk-scoring parameters.
Suppliers receive notification that they have to upload documentation, so there is no need for back-and-forth email communication. Based on data, you create a risk profile unique to each supplier. Each assessment is accessible to third parties for review and commentary.
Supply Chain Media Monitoring
Learning your business has ties with a factory that collapsed due to neglect and killed many is bad news. Such stories are becoming more and more common as NGOs and the media investigate human rights abuses, corruption, and bad business practices.
Many big retail brands recently tasted the bitterness of bad press with concerns raised over the situation of the Uyghurs in Xinjiang, some even being dropped by A-list supporters on one side and lashed on the other.
Supply chain monitoring does not only have value where CSR issues or forced labor are concerned. It can also reveal clues regarding a supplier’s financial health or involvement in legal cases. Rumors of an M&A can prompt you to evaluate your partnerships.
While not enough to be effective means of risk management on its own, Source Intelligence’s supply chain media monitoring provides a robust picture of risk when used in conjunction with other programs.
Source Intelligence’s media monitoring solution automatically parses online, print, TV, and radio mentions of the suppliers you submit to the system. Other outlets worth watching include social media, blogs, NGO reports, court filings, and more.
You receive real-time alerts and can easily consult the gathered articles on our platform. You can derive many useful insights that help identify areas of risk and promptly take appropriate mitigation measures.
Knowing your vendors’ processes, policies, business standards, and financial situation allows you to assess risks directly threatening your organization. You can evaluate how badly hurt you would be if the risk materializes, or how easily you can replace them should it come to that decision.
In essence, supplier assessments are a method of identifying and mitigating risks before they turn into damaging crises.
Source Intelligence’s customizable supplier assessment program is designed to collect information for over 50 global regulations. Verified surveys help you gain better supply chain transparency, leading to obtaining the key driver of business decisions: data.
Our assessment program includes:
- Centralized data storage
- Supplier performance scoring
- ESG Reporting
Stakeholders have higher expectations than ever before. Investors no longer look solely at assets and financial performance; buyers’ decisions are motivated by more than quality-cost ratio; governments demand more accountability, etc.
ESG reporting addresses issues that can harm the reputation, hinder operations, and cripple financial performance. Moreover, it becomes harder to ignore the collective dangers of unmanaged risks in terms of human rights, hunger, deforestation, climate change, gender equality, not just at the organizational level, but as an entire race.
Regardless of the ESG framework(s) you selected to accomplish your goals, Source Intelligence’s ESG reporting solution brings you the features necessary to reach your goals including:
- Supply chain mapping
- ESG data and documentation requests
- AI-powered data-validation
It is then easy to identify areas of high risk and create dynamic reports that document the next steps to take.
You can go shopping for solutions from various providers, or you can opt for the most comprehensive, fully integrated data-driven platform that offers heightened collaboration, high supplier engagement, and centralized data storage all in one platform.
Request a demo of our Supplier Risk Management collection today.