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Smarter Commerce | October 31, 2014

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Customer Advantage In Managing Vendor Risk

Harrison Cheung

Duncan Jones of Forrester Research is a leading expert on ePurchasing technologies, such as eProcurement, eSourcing, and electronic invoice presentment and payment (EIPP). He advises clients on their application strategy in this area, including how to make good choices between alternative solution providers, and how to get the best results from implementation.

Recently, Duncan was a guest speaker at our Smarter Commerce Summit in Tampa, Fl. He spoke about supplier risk and performance management (SRPM) and what it means to Procurement. Duncan explained that it is vital for Procurement to manage risk, because the company’s customer experience and brand depend so much  on its suppliers, its suppliers’ suppliers, subcontractors and so-forth.

Duncan began with examples ripped from today’s headlines. For instance, when a major airline’s reservation systems suffered an outage, customer satisfaction ratings plummeted even though the outage was traced to the airline’s outsourced IT vendor’s telephony supplier!

Duncan noted that companies depend on their complete supply chain, but operate on a continuum of risk tolerance. But a strategic approach to managing vendor risk can also turn into a competitive advantage! Some companies will tolerate zero risk, while others analyze the trade-off of dealing with a supplier with perhaps lower costs or an innovative new solution but  less financial stability than preferred.

The approach Forrester suggests?  Moving toward:

  • Customer Obsession & Supplier Risk
    • Where customer experience is balanced against risk
  • Balanced Risk Assessment
    • Where customer-focus means considering multiple kinds of risk. And these risks vary by priority depending on the industry. For example, a food vendor’s ultimate risk would be food safety, while perhaps an automotive parts supplier would be worry more about supply chain disruption and delivering defective parts that might lead to liability.
  • Smarter Risk Assessment
    • Analyze the impact of risk on your customers
    • Implement a supplier risk and performance management (SRPM) platform

An SRPM should be designed to monitor suppliers from end to end, and from multiple sources, including, for example, news feeds, financial reports (Dun & Bradstreet), social community opinions, and colleague opinions. Even weather reports. Duncan pointed out that a storm or drought in a supplier’s home country might impact the reliability of a supply line.

In fact, Duncan noted, a good SRPM relies on a granular view and that procurement professionals need to be looking at the lowest possible level.

An SRPM is more than just data gathering and reporting. As part of its smart risk management capabilities, an SRPM provides performance optimization and process management. And an effective SRPM becomes a competitive advantage over companies that have not implemented proactive controls.

Duncan used an example from a British sitcom called the IT crowd– it’s one thing to detect a fire’ it’s another to know how to put it out. Hence, you need an SRPM system that not only alerts you to problems but also also includes process management that  defines what actions to take.

In closing, Duncan encouraged the audience to focus on risk management and become fearless.

  • Rethink your supplier risk
  • Create a treatment plan
  • Collaborate with your business executives to create competitive advance from Supplier Risk management

It’s an opportunity for sourcing & procurement professionals to elevate its causes and motivate its executives by using the failures of its peers. Fear of risk becomes a good motivator!

LEARN MORE:

Download this case study “An Engine of Change in Supplier Risk Management.” What it’s about:  During the global financial crisis in 2008, global engineering and manufacturing company ZF Friedrichshafen AG (ZF) discovered that the financial instability of its key suppliers threatened the company’s growth and production. When one of their critical suppliers went out of business, it put their manufacturing process at risk—as well as their entire business. Read this case study to learn how ZF discovered innovative ways to manage supplier risk proactively, quickly detect supply chain risks and initiate timely corrective measures.

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