A recent webinar (Sept. 9, 2014), “Results of the 2014 Hackett Group Supply Risk Management Study,” presented by Patrick Connaughton, Senior Research Director, The Hackett Group, and Sumit Vakil, CTO & Founder, Resilinc, was filled with facts and insights that present a valuable picture of what is impacting sourcing and procurement in terms of supplier risk management. Mr. Connaughton generously shared key takeaways from the study that helped participants better understand supply risk trends, measuring value, risk exposure, and tactics for risk mitigation. The two largest industries represented in the study are pharmaceuticals and financial services. So many key results were presented it is difficult to single out ones to highlight but here are some I found to be of particular interest:
- Ensuring supplier financial viability is the main driver behind creating a risk management program (71 % of respondents).
- Lack of resources is the biggest challenge for supply risk management programs (75% of respondents).
- Only 24% of respondents rank managing price fluctuations as “critical” or “high” importance. Connaughton pointed out that this is an interesting result because purchase price escalation is one of the main events identified with the highest risk exposure.
- The most common success metric being tracked is the number of supplier risk assessments completed by the procurement team.
- On average, only 20% of indirect suppliers are actively monitored for supply risk today (direct materials 33%).
- The median spend threshold that triggers a risk review is $500,000.
- It takes an average of 4 days to complete a supplier risk assessment.
- To help scale efforts, 32% of respondents partially outsource the gathering/cleansing of data for analysis process, while 23% partially outsource risk assessment processes (this is expected to increase to 43% in the future).
- The most used tool today to support risk management is Microsoft Office followed by financial risk content providers. The tools on the rise are purpose built/niche supply risk software (the fastest growing) and Business Intelligence.
- Connaughton stressed that technology and data related events are increasingly becoming a major area of risk concern.
Sumit Vakil’s presentation was entitled “Resilinc Supply Chain Risk Approach.” He introduced Resilinc as the “world’s biggest repository of supplier, site, part and multi-tier intelligence.” Resilinc enables supply chain visibility by creating supplier multi-tier intelligence and mapping it. The repository is created with solutions for risk management, event monitoring, conflict minerals, corporate social responsibility and business continuity. The Resilinc approach is based on four best practice steps: Plan, Protect, Sense, and Respond. The Plan step, for example, includes: map suppliers and parts across multiple tiers; quantify single points of failure; and prioritize resources and budget for mitigation, while the Sense step includes: monitor global events 24/7; research event to determine scale and size; and notify customers based on impact. Vulnerabilities are pinpointed using risk scores for financial (financial health, credit risk, Z-Score, debt rating), location (natural disaster, geopolitical, macroeconomic, location/site specific risk), recovery (recovery time, business continuity capabilities), and operational risk (delivery and lead time performance, quality, cost and flexibility, capacity).
Thank you to both Hackett Group and Resilinc for the excellent presentation.