Managing Supply Chain Risks in Today's Procurement Environment

Supply chain risks have been rising in recent years, and although the COVID-19 pandemic is to blame for many of them, some of the disruptions to the supply chain are systemic issues that have been present for some time. Organizations that don't have the tools to obtain visibility into their supply chains and manage their data are at higher risk than others, if only because they have little to no control or accountability over what occurs upstream.

According to McKinsey & Company, global losses due to natural disasters reached $150 billion in 2019. In 2017, the supply chain lost nearly $350 billion.

Other disruptions, including political and economic disruptions, are likely to continue in the near term. Supply chain and procurement professionals aren't backing away from these challenges, but they are also addressing them at a unique point in time. The current supply chain landscape is like none other in recent memory, and it is likely to spur significant innovation for the next few years.

But just how will procurement organizations manage supply chain risks in today's environment?

Focus on Resiliency

Many of the losses suffered by organizations in the supply chain are the result of noneconomic factors that are outside of human control. Climate change is increasing instances of natural disasters across the globe, including hurricanes, flooding, and wildfires.

However, successful supply chain risk management could potentially avert some crises and introduce more resiliency into the supply chain. The issue for companies today is that not every procurement organization is investing in supply chain risk management as much as they should.

By investing time and capital into automating supply chain management activities, organizations could address disruptions systematically instead of on an ad hoc basis. Advanced companies hire permanent supply chain risk management teams and use their systems to automate their responses to likely events.

Furthermore, supplier diversification could become paramount to avoiding disruptions moving forward. Companies that rely on a single region for their raw materials, for example, are more at risk than those that maintain suppliers in a variety of regions. This type of diversification is challenging in some industries, but new tools are emerging that help companies find suppliers they weren't previously aware of.

Finally, companies must continuously monitor trends and events that may cause disruptions. If they have the right technology in place, they could even use predictive modeling to understand how a singular event could impact the supply chain and, by extension, their business.

Adopt Future Technology

This brings us to the necessity of new technology in the supply chain.

Recent events have revealed the inherent complexity of global supply chains, as well as their vulnerabilities. The current disruptions also come at a time of rapid technological change at most organizations.

Companies are adopting technologies like artificial intelligence, machine learning, and blockchain to obtain predictive capabilities and gain more visibility into their supply networks. However, they are at varying levels of maturity. Some technologies, such as blockchain, have many potential applications, but they are only beginning to be explored.

Thankfully, many companies are recognizing the potential for successful risk management through the adoption of advanced technologies.

According to Steve Davenport, Global Technology Lead for Supply Chain & Operations at Accenture, in a recent SupplyChain article, "Our research shows that 64% of supply chain executives report the pace of digital transformation for their organization is accelerating. As a result of the rapid digital transformation, we've seen growing investments in data, AI, and digital twin technologies to power supply chains. In the coming months, businesses will be able to prioritize the idea of learning from the future."

Don't Miss the Next ProcureCon Event

Supply chain risks can come in a variety of forms. Shifts in regulation, raw materials shortages, logistical challenges, and other risks aren't going to go away anytime soon. But there are plenty of things procurement organizations can do right now to manage risk and reduce their risk thresholds.

Burgeoning technology innovations hold immense promise for supply chain risk management. Blockchain alone could revolutionize the way organizations monitor and track their supply chains and interact with their vendors. Furthermore, organizations are developing innovative approaches to supply chain resiliency through diversification and data management.

These and other procurement topics will be widely discussed at the next ProcureCon conference. Find the next event using the WBR Conferences search tool.