Fixing Fractured Supply Chains Via Risk-Based Monitoring
The past two years had a mild to severe impact on supply chains globally, leaving the companies to look for ways to repair them before rebuilding and re-optimising the future of their business.
Risk identification, for the majority, is possible by checking the company data, which also enables looking for specific types of risks. Dun & Bradstreet’s 2021 report on “The Resilient Supply Chain” identified six risk areas that CPOs consider to be crucial.
Business leaders can focus on these areas to repair their supply chain shortly and place it in a stronger position for the future run.
The six types of risks include:
1. Globalisation scale and complexity
3. COVID-19 business recovery
4. Ongoing supplier monitoring
5. Due diligence during supplier onboarding
6. Environmental, social, and governance (ESG)
Knowing what type of data to watch for signs and symptoms of risk disruption is essential for profitably keeping these risks at bay, enabling the procurement to focus their primary efforts there and concentrate on risks and disruptions while categorising their spending.
Where to Look?
Globally Extended Categories and Supplier Relationships
Even though digitally transformed supply chains enhance global visibility, monitoring distant suppliers and their products and services is still strenuous.
Citing ‘distant’ may indicate the literal miles of separation, cultural differences, or both.
Here, the term distance also covers various supply chain tiers, the number of supplier relationships and handoffs required to get the product back to the company’s hands.
Geographical Distance: Tier-1
As the distance from the supplier increases, so will collaboration and communication difficulties. The difference in time zones, in addition, can make the whole communication process even worse.
Before the final delivery, the product must travel a long distance and pass through many hands, some of them being third-party shippers.
For suppliers beyond a specific reach, it is wiser to invest in additional monitoring processes after examining the contracts and checking the distance between the manufacturing centre and the company headquarters.
Geographical Distance: Tier-2 & 3
After tier 1, the procurement must address the supply chain tiers 2 & 3 for better comprehension of threats that a supplier and a supplier's supplier may encounter.
Mapping the supply chain beyond tier-1 can help to identify the individual risk sources based not only on distance and location but also on where more than one tier-1 supplier depends on the same tier-2 supplier. It may result in a ‘choke point’ of risks in areas where the company believed it expanded its supply sources.
Supply Chain Tiers: In General
There are instances where supply chains extend beyond after identifying and addressing the high supplier risks in the previous three tiers. This alone justifies additional monitoring by first determining which critical products depend on suppliers beyond the third tier and then investing in auxiliary monitoring processes.
The most productive way to gain visibility in all the tiers is by reconnecting and reinforcing the supply chain via external data and business information service providers.
Early Signs of Fraud
Companies of the modern age are very much dependent on data and digital information to make informed supply chain decisions. And in that matter, the quality of the data procured is of primary concern.
Keeping aside the quality issue, the root cause of the troublesome data, in some cases, is fraud.
Since risks tend to thrive in unmonitored areas, monitoring the supply chain is always the best initial step against fraud.
For effective and dynamic surveillance, the procurement can keep these data signals in check:
1. Obscurity in parent-level or subsidiary vendor identity
2. Trouble matching shipping documents and invoices with contracts and suppliers
3. Random variations in invoice totals, even in consistent demand
4. Frequent changes in shippers, from or between the suppliers
Supplier Risk Sources
We have addressed the risk sources from the entire supply base and beyond. However, there are chances that individual suppliers may be the sources of risk all on their own.
The procurement should be able to dynamically monitor the supply chain for disruption instances and risks elevated in two ways:
Ongoing Automated Monitoring
It refers to automated processes that enable automatic monitoring of specific suppliers and/or supplier locations for risk events and non-compliance. The more agile these automated processes are, the more will be the ability to monitor these susceptible risks.
Manual monitoring operations where an individual must find time to check on specific suppliers are very much like having no risk monitoring.
Additional Risk Screening During Supplier Onboarding
Even though risk assessments are conducted in all advanced sourcing processes, it is necessary to benchmark suppliers for the specific risks at the time of their onboarding. This not only helps in later comparisons, but the contracted suppliers will also have a clear understanding of risk once they know that they secured a piece of business when they are one of the many in the run.
Competitive supply chains are so connected and complex that the inherent weaknesses of a company’s supply chain can keep its leaders all hot and bothered. One can efficiently manage these supply chain risks by adopting some practical and data-oriented measures. Once you bring them into action, you can strengthen the supply chain by healing its initial fractures.
Learn how Dun & Bradstreet helps refine your supplier risk management process to build more resilient supply chains.
Fixing Fractured Supply Chains Via Risk-Based Monitoring
Posted on, 11/29/2022
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