The importance of suppliers in risk mitigation

Having a comprehensive recovery plan in place is essential to the longevity of a global supply chain. However, many executives don't realize the paramount importance of risk management processes until a disruption actually occurs and weaknesses along various checkpoints are uncovered.

Although procurement and logistics leaders have no way of knowing when a disaster will occur, there are a number of mitigation strategies companies can adopt to reduce financial and production loss and improve the resilience of operations if an interruption were to occur. In order to know how to prevent disruption, it is first important that businesses have a thorough understanding of where the biggest vulnerabilities are.

Mitigation focus areas
This week, Procurement Leaders is conducting an analysis of major risk areas for supply chains and how much each can end up costing companies, the organization's head of strategy research, Jonathan Webb, reported in an article for Forbes. The company identified five areas that are especially susceptible to threats: quality, delivery, price, legal and reputation.

The source recommended that businesses integrate automation into quality risk management processes to streamline production and minimize the chance of mundane mistakes. There are several ways in which the delivery function of supply chains poses risks: early delivery, late delivery and non-delivery.

Webb said that the two common risks associated with price are volatility and inflation. However, signing long-term contracts can help supply chain leaders avoid the negative impact of abrupt price fluctuations and elusive markets.

In addition, he indicated that, in order to avoid liability issues, it is crucial for companies to be thorough in training suppliers and procurement managers and conduct assessments that ensure suppliers are adhering to compliance and regulatory standards.

Supply chain relationship management
Evaluating suppliers is certainly an area that many company neglect. Supply Chain Brain contributor Robert Bowman recently revealed that research conducted by the Business Continuity Institute and Zurich Insurance Group found that about one in every 10 businesses is unable to name its main suppliers and 70 percent of organizations need more supply chain visibility.

Making sure supplier relationships are secure is also important since, as Webb pointed out, the legal risks can sometimes overlap with the reputational ones which, the source added, is an area that can be difficult to discern.

"Such instances can often relate to aspects which are legal and even viewed as the business norm, but can shock the public," Webb explained. "It may be perfectly normal (even good business practice) but it strikes others as plain wrong."

The source noted that people rarely distinguish between which parties purchase goods and services and which ones supply them. Therefore, any mistake the supplier makes goes unacknowledged and the media focuses on the well-known company names.