Supply chain risk continues to be a hot topic among business executives –and for good reason. The current economic downturn, combined with an increasingly complex global business and regulatory environment, has created an atmosphere where most firms are feeling more vulnerable than ever to uncertainty in their supply chains. If you’d like some numbers to back up that claim, consider this: According to an Ernst & Young LLP poll conducted in January 2009, 67% of companies said they would be adversely affected if one of their top three suppliers failed. I wouldn’t be surprised if that percentage has creeped even higher now, indicating that supply chain risk is emerging as a significant top priority.
“Supplier risk is an order of magnitude greater than it has been in decades,” says Mark Short, Partner, Ernst & Young LLP TAS. “Companies are faced with deteriorating cash and credit conditions, and at the same time, an increasingly complex, integrated supply chain.”
Fortunately, since the issue is getting so much press, there are also plenty of ideas being generated for getting a handle on risk identification and management. For instance, Ernst & Young LLP suggests you:
- enhance your due diligence and predictive modeling as it relates to mission-critical suppliers
- establish a program to respond to troubled suppliers before the situation gets out of hand
- update or augment your knowledge and resources relating to potential exit strategies within bankruptcy and associated actions.
Last week, the Journal of Commerce also ran a comprehensive article, penned by Melissa Irmen, vice president for products and strategy at Integration Point in Charlotte, North Carolina. In “10 Ways to Reduce the Cost and Risk of Global Trade Management,” Irmen outlines how companies “can ensure they are being as efficient, safe and cost-conscious as possible in the short run while building a sound infrastructure for future needs.” Her list breaks down into two broad areas:
- Use appropriate trade screening software to ensure a comprehensive validation process.
- Be aware of trade compliance responsibilities.
- Be prepared to deliver Customs paperwork electronically.
- Create proactive plans for efficient, expedited transport.
- Enable scalability.
2. Work closely with partners
- Build a network that includes partners, vendors, government agencies, NGOs, etc.
- Use Saas systems so users can focus on their core business strengths, rather than hardware or software maintenance.
- Recognize the critical importance of supply chain security.
- Use a centralized global view of all entry processing throughout your supply chain.
- Include supply chain practices as part of your CSR reporting.
While there's no doubt that supplier risk and performance management can present considerable challenges, it's also clear that companies that put these strategies into place now can reap big benefits down the road. Not only will they become more efficient and more cost effective, but these firms will also be positioning themselves to be more competitive once the economy turns around.