Do you want to make sure that your organization doesn’t have to struggle when the next crisis hits the market? Take a practical approach for supplier risk management and analysis and prevent your business from vulnerabilities.
Within the last decade, our world has changed drastically. A large number of organizations have been affected due to supply chain disruptions, and they often lead to a loss of hundreds of million dollars in every industry. That’s why supplier risk management is essential.
At the center of all these crises, there is one factor: lack of a strong process that can perform supplier risk analysis and provide us solutions. The increase in globalization has further increased supplier risks. Even the managers are tasked with the coordination of global strategies for risk assessment, compliance, risk mitigation, and all this while maintaining an optimal productivity level. As more than 50% of a company’s products/services rely on the supply chain, though this may vary according to the company, we must take supplier risk monitoring and analysis more seriously.
So, here are five steps to perform integrated supplier risk management.
Step 1: Focus on Developing an Integrated Supplier Database
The first and foremost step to build a comprehensive solution is integrating the supplier information throughout the operational system. Consolidating the data across a multinational organization will provide visibility and real-time information. The supply chain transparency enables the enterprise to perform reviews regarding risk management and ensure proactive compliance.
It helps in creating actionable management reports that include data collection and accountability of all departments involved in the supply chain. Hence, the manager can track, collate, and monitor all internal and external data relevant to supplier risk management. And when the picture of risk factors is clear, taking preventive measures on time will also be quick.
Step 2: Divide Suppliers According to Risk Category
With more than enough data about the suppliers, the organization can narrow down the list of suppliers who are more likely to impact the supply chain. Once those suppliers are identified, you can draw a pattern of behavior they might exhibit in the event of an unforeseen crisis. Such suppliers are unstable in every perspective, including financial, geopolitical, and other aspects as well.
Assign the risk category to the suppliers to ensure that you always have backup suppliers for supplier risk solutions.
Step 3: Integrate Supplier Risk Management with Predictive AI
One of the vital supplier risk solutions is integrating the data collected through assessment or analysis into a Predictive AI. The AI will help the organization to predict the future risk based on the current statistics. While there is no AI that can accurately predict the risk, we can certainly predict the solutions that can help to cope with the crisis.
The Predictive Intelligence System will take supplier risk monitoring into its hands and continue crafting sourcing strategies to find new suppliers. Predictive Analysis is a well-designed procedure that will give you a clear understanding of integrated supplier risks.
Step 4: Perform Supplier Risk Analysis Frequently
As we know that supplier risk management requires performing assessment as often as necessary, we need to understand the reasons for failure. They include:
- A natural disaster that wipes out shipping infrastructure and manufacturing facilities.
- When management changes, costs are cut, and quality and skirting regulations also change.
- Regulatory changes also affect the organizations when sourcing or human rights laws intervene or influence the supply chain.
- Geopolitical instability also negatively impacts the manufacturing facilities if they are located in areas where civil wars, protests, epidemic, or political tension is present.
While some suppliers provide stable and reliable service over the long run, others lack this quality and suffer from detrimental changes under crises.
Step 5: Build a Culture of Risk Awareness
A critical element that will assist you in supplier risk management is being aware of the risk culture. It will help the organization to establish and maintain strong defensive measures against unknown risks; some of them include:
- Acknowledgment of the management and employees’ mistakes that could lead to disruption.
- Transparency in the risk tolerance policy, along with risk mitigation.
- Responsiveness of the employees towards immediate changes in ownership, policies, regulation, or any other factors.
- Respect for the organization’s goals. The objective of employees should align with the company to make sure that they work while keeping the organization in mind.
Now that we understand the supply chain risks in the organizations, we suggest taking all necessary measures for managing supplier risk. All enterprises must have a robust supplier risk monitoring process that can manage both unknown and known risks.
Author Bio: Credit risk monitor provides expert data and AI-powered financial risk analytics that will help you make informed decisions. They offer clients credible solutions to avoid disruptions in the supply chain.