Aug 29, 2017

Not a day goes by without stories in the news about events that negatively impact businesses. The nature of the business world today makes it more sensitive to disruptions  than ever before. Anything from changes in tariffs due to the rise of protectionism to natural disasters can impact a supply chain. This isn’t exactly news, but many Procurement organizations have been slow to adapt

A recent report by the Hackett Group (Integrated Risk Management: A Playbook for Procurement reveals that most Procurement organizations are still far too passive in their approach to risk management, which exposes them to costly disruptions. Even worse, some are potentially hurting themselves by creating the conditions for disaster!

“The historical predominance of reactive risk management is no longer sustainable. The Hackett Group expects broad adoption of formalized supply risk management programs by world-class procurement and supply chain organizations in coming years. While global risks have grabbed most of the headlines, even greater risks may lie much closer to home. In fact, many companies face hazards to their supply chain caused by their own focus on cost reduction in recent years.”

To get ahead (or even stay afloat), Procurement organizations urgently need to ramp-up their capabilities and equip their teams with the right mindset, skills, and technology to turn risk management into a competitive advantage.

Most Organizations Are Not Mature Enough.

According to The Hackett Group’s study, too many Procurement organizations are still a far cry from being at world-class level where risk management is concerned. Most “supply risk management programs are relatively immature.” Despite being aware of the importance of risk management, many companies still have an inefficient approach. Supplier risk assessments can take days to complete and they’re a lot of work. Perhaps because these assessments  are so time-consuming,  many companies only do them once a year, which is not nearly enough. These organizations  are at the “conscious incompetence” stage.

 

Grafik_Hackett_Report_Blog.png

On the opposite side of the spectrum, however,  world-class organizations have successfully embedded risk into their practices and are already “unconsciously competent.” Risks are continuously assessed in real-time and mitigation plans are in place, ready to be activated. Potential risk exposure is also taken into account for every decision. These companies are antifragile and are thriving in today’s world, which is characterized by volatility, uncertainty, complexity, and ambiguity. They have turned risk management into a competitive advantage.

It’s Time for a Reality Check!

It’s true that risk management is a complex discipline. There are many factors to take into account, supply chains are more complex than ever, and interconnections create new dependencies and new potential threats.

Factors_Reality_Check_Hackett.jpg

Source: The Hackett Group

That’s the reality we’re living in now. However, instead of being an ostrich and burying their heads in the sand, Procurement pros need to be conscious of these conditions and not complacent. There needs to be a shift from the financial viability of suppliers to supply continuity and regulatory compliance, which are the most critical areas of development according to organizations surveyed by The Hackett Group.

Principal_drivers_risk.jpg

 

 

 

 

 

 

 

 

Source: The Hackett Group

This means that some activities, like category management and sourcing, for example,  have to integrate risk and all the required dimensions and layers present in a tiered supply chain.

integrate_risk.jpg

Source: The Hackett Group

There Is a Need for New Tools!

World-class organizations are already doing this, and now other companies can get on the right track too, thanks, in part, to a new generation of supplier lifecycle management tools. MS Excel and MS Access, the tools that most organizations use according to Hackett, are no longer adequate.

Companies have to invest now or risk falling behind:  “world-class companies [...] move toward proactive risk management practices, as opposed to continuing to simply react to risk events when they happen.

New Call-to-action

Neuer Call-to-Action (CTA)

Subscribe To Our Blog

LinkedIn Xing Twitter Facebook Google Plus YouTube

Let Us Know What You Thought about this Post.

Put your Comment Below.