How to minimise supply chain risks in 2019
Proactive supplier relationships and conversations about financial health are crucial to navigating volatile times ahead as Brexit looms closer, a webinar was told.
The collapse of Carillion came out of the blue for many firms, but James Gellert, CEO and chairman of RapidRatings, warned that there could be similar collapses on the horizon as global capital markets volatility increases.
As Brexit gets closer and further global issues such as the US government shutdown and trade talks with China present a potential volatile climate ahead, Gellert, together with Alan Hartley, head of procurement and supply chain delivery at Sellafield, discussed the benefits of proactive supplier relationships and using data to inform decisions.
During a CIPS webinar (opens new window) discussing strategies to minimise risk within supply chains, Gellert said: “Going forward, volatility is going to be a word that will affect everybody in supply chain and the managing and transformation of supply chains. The next three to five years will be very different to the last three to five years in terms of stability and the overall macro environment.”
Evolve risk management through collaboration
Gellert believes that the uncertainty around situations such as Brexit could mean more firms see an increase in supply chain disruption within the next two years, and therefore evolving and transforming processes is crucial to managing risk within supply chains.
Many firms find different risk areas siloed into different business units, and there isn't a process for sharing information across those risk areas, which leads to inefficiency makes it much harder to gauge return on investment. There also tends to be less of a focus on using current data.
Gellert said: “As companies evolve, we’re seeing centralised systems, analytics and processes that allow for the sharing of results along those different risk areas and business areas. We’re seeing consistent and fresh data coming into those organisations. That is really the foundation of optimal risk management.”
However, without a senior management mandate and proper budgeting for these processes, there will continue to be silos or breakdowns across business units. He said: “Everyone one who touches an outside relationship, from procurement to offboarding a supplier, needs to have good communication and coordination.”
According to Gellert, collaboration and showing the commercial value of transparency is not only important for risk management but an excellent means to gain the most resilient supply chain possible while developing a common risk language across business units.
He said: “When you think about all of the various elements that can cause risks, they are built on a foundation of a company's financial health. A company that is weak at its foundation is going to be shaky for everything that is built on top of it.”
Being able to look deeply into a company and gain transparency into suppliers while building relationships based on the high standards of transparency and consistent disclosure of information between parties is extremely important, he said.
Think proactively and use data
According to Hartley, up to a third of firms feel like they are not prepared for Brexit and the uncertainty around the UK leaving the EU is only growing.
He said: “The only certainty we currently have about Brexit is that supply fragility is going to increase and there are going to be more failures in our supply chains.”
While most people probably wouldn’t be prepared for supply chain failure involving one of their significant suppliers, firms can quickly get to a place where they are using intelligent data and in turn are proactively positioned to deal with supply chain failure.
The consequences of passive supplier risk management, Hartley warned, could lead to a variety of issues such as as inability to operate, an impact on health, safety and security, reputational damage, challenging shareholder questions or even a social impact such as a loss of local jobs.
Hartley said through his own experience at Sellafield, it was important that procurement teams have a proactive approach to managing supplier relationships and risk, rather than acting on out-of-date data.
He said: “Having fresh data is one thing, but doing something with it on an ongoing basis was important to me. I wanted to make sure my team wasn’t just getting the data and leaving it there statically until something happens, but actually looking at that data on an ongoing basis.”
By creating a risk tracker, he said, the team was able to monitor suppliers’ financial health so even if a supplier with a healthy score is showing signs of a downward trend, the team can act and engage with that supplier in a proactive way.