Risk management isn’t a new term or notion to the supply chain and procurement industry, yet it continues to be one of the least addressed priorities within organizations. KPMG recently shared a report on fourth-party risk that notes roughly 80% of businesses say they need to urgently improve their assessment of fourth parties in their supply chain.
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Today, a lot of the low-hanging fruit has been picked by CPOs. But one area where there is significant scope for procurement to deliver value is supplier-enabled innovation (SEI). With 25% to 45% of revenues coming from product innovation and up to 65% of innovations sourced externally through external partners and suppliers, SEI represents a treasure trove of opportunity.
When we look back at the globally disruptive events of the last 18 months, there aren’t a huge number of positives to draw on. But one significant silver lining is that major crisis events like the pandemic and the Suez Canal blockage have helped leading procurement teams step into the spotlight and demonstrate their skills at mitigating risk and ensuring business continuity.
From the outside, procurement appears to be a relatively static department focused on one core goal: Acquiring the right goods at the right price.
But behind the scenes, procurement teams have been silently evolving. They’ve been growing their capabilities, creating value in new ways and driving growth while ensuring business continuity.
2021 was an immensely challenging year for procurement teams across the globe. Not only did most of the challenges of 2020 continue, but many got significantly worse. Between major supply shortages, rising commodity prices and new variants reigniting pandemic-related disruption, teams had to work extremely hard just to keep their organizations operational, let alone achieve their strategic goals.
Over the last few years, we’ve seen artificial intelligence (AI) being used for a host of procurement applications, from spend analysis to supplier risk monitoring. Now, the same technology is increasingly being applied to commodity forecasting.
In the right situation, this can provide invaluable insights. AI makes it possible to look at larger, more complicated data sets over a longer period of time, helping to improve the accuracy of predictions and supercharge decision-making, near real-time.
The role of procurement is changing. Okay, I know – you’ve heard that before. But after the events of 2020 and the ongoing repercussions, that change has been hugely accelerated.
Increased market volatility and a high risk of supply chain disruption have placed pressure on procurement teams to maintain profitability, better manage working capital, mitigate third-party supplier risks and drive business sustainability. As a result, those teams are playing a more central and strategic role in their organizations.
Risk plays a role in every decision that is made by every business – and the supply chain is certainly no exception. Every supplier choice, contract negotiation and procurement transaction involves an unavoidable element of risk.
But just because risk can never be fully eliminated, that doesn’t mean it’s ok to leave it up to chance. Effective supply chain risk management demands continuous attention, careful planning and thoughtful execution.