Purchasing departments must increasingly consider globalization, compliance issues, and reputational risk in their efforts to build a resilient supply chain.
Avoiding supply disruption and containing costs remain top responsibilities in the purchasing department. But when it comes to managing risk, buyers have much more to consider in 2017. Today’s complex global supply chains are adding issues to the plates of buyers throughout the manufacturing community, creating a greater need to develop resiliency up and down the supply channel.
“There are enough things changing from a disruption perspective, that it’s really requiring organizations to think beyond just a typical procurement standpoint,” says Glenn Yauch, principal and supply chain risk and resiliency leader for consulting firm Deloitte Advisory, which helps clients manage business risks. “In a traditional viewpoint of supplier risk, procurement [managers] get up in the morning and think about disruptions in getting things into the plant, for one, and cost, second. There is a big focus on that. Today, there are other things they need to start thinking about.”
Other issues include risks associated with globalization, regulatory and compliance issues, and reputational risks. These are issues that may have been relegated to specific roles or departments in the past, but today permeate organizations and increasingly play a role in the supply chain—and as a result, in the procurement department. Here’s a look at how these issues are taking on a greater role for buyers:
Globalization. The benefits of a global supply chain include greater reach and a wider supply network—but the flip side of that is complexity and compounded risk. What’s more, Yauch cautions that companies must consider global crises and the implications they may have on a company’s supply channel. Last year’s Brexit vote is one example.
“What impact could a global crisis have on your supply channel? It could require you to quickly change course depending on what agreements are made. You could easily have to change your supply chain,” he says. “On one hand, companies must take advantage of their global reach, but at the same time they must manage change associated with it.”
Compliance. Organizations must deal with more layers of compliance and regulatory issues today, at all levels.
“There are a lot more compliance issues out there—contractual and regulatory concerns that you have to be more aware of now,” says Yauch. “Traditionally, these issues don’t always fall under procurement, but they get on the plate more often, and [buyers] must deal with them.”
In recent years, stepped up efforts to keep counterfeit electronic components out of the supply channel, as well as the need to comply with conflict minerals regulations, are two examples of how this affects the electronic components channel, in particular.
Yauch says compliance is a particularly complex and growing concern because it touches so many parts of an organization. Traditionally, much of the responsibility surrounding compliance is geared toward individual responsibility for risk monitoring and reporting—actions that don’t always take into account what’s happening “behind the supply chain curtain,” he adds.
“Compliance issues don’t always fit into one function,” he says, pointing to the need to home in on the important aspects of your supply chain and figure out how compliance may have an effect. “[Companies] begin to realize right away that a key challenge here is that rules and regulations are evolving so fast that they don’t always know what they need to comply with versus what they could comply with … This creates an opportunity for good conversations about the things that could affect your company—in terms of fines or the effect on your brand or image.”
Reputation. Social media and a more “connected” world are having a considerable effect on corporate brand and image. As Yauch explains, what may have been a minor issue just a few years ago can easily accelerate into a public relations emergency today. Labor issues and responsible sourcing are two areas that come to mind.
“This is certainly a newer phenomenon. The old days of having a disruption and ‘muscling through it’ are largely gone,” says Yauch. “Incidents can very easily be slipped into social media to damage a brand. What may have been a small, very manageable incident in the past could easily escalate into something else. This needs to be baked into what the procurement folks and others in the company need to think about—especially when bringing in suppliers.”
Technology to the Rescue
Communication and awareness play a large role in combating these suppy chain risks, but technology is probably a company’s greatest weapon. Yauch points to a growing interest in analytics programs, as companies of all sizes attempt to harness data to improve their supply chains. This can be done on two fronts: implementing software programs that create greater visibility throughout the supply chain (by giving buyers more information about each level of supplier, from tier one on down) as well as those that allow buyers to monitor and evaluate that supplier data.
As Yauch explains, using technology to illuminate the supply chain is a key step in the ultimate goal of building resiliency.
“We all know what risk is. And frequently, the viewpoint when it comes to supply chain risk is that it’s all about insurance,” Yauch explains. “What we say is, the resiliency play is really oriented toward realizing that things are going to happen and being able to respond to them. It’s not about preventing 100% of the risk; it’s about realizing the risks are out there, preventing what you can prevent, detecting what you can detect, and fixing what you can fix.”