The problem with most supplier risk assessments is that they’re focused on the highest-volume direct suppliers. This leaves companies blind to major risks in the lower tiers of their supply chains.
Resilinc’s analyses of supply chain disruptions—based on our 10 plus years of EventWatch supply chain monitoring data—shows that about 80% of disruptions occur in the lower tiers. Supply chain experts and McKinsey amplified this point in a recent report, writing, “Most large firms have only a murky view beyond their tier-one and perhaps some large tier-two suppliers.”
So, many typical risk assessment exercises leave companies blind to the vast majority of potential risks lurking in their supply chains.
Another common mistake that weakens supplier risk assessments is spreading the job across multiple departments: one team looks at CSR; another measures product quality data; another analyzes cybersecurity, and so on. This creates a fragmented picture of risks and makes strategic responses more difficult to prioritize. It also tends to overburden suppliers with redundant requests for information, leading some to short-cut or ignore requests for risk information.
A number of firms offer supply chain risk assessment and risk management services, and many OEMs would do well to investigate how a third-party solutions provider could streamline and improve their supplier risk assessments. For our part, Resilinc’s solution supports our customers’ return on investment in some unique ways:
–Our customers leverage our Supplier Intelligence Network—now incorporating more than 100,000 supplier firms and nearly 500,000 production and logistics sites owned or used by those firms. Accessing this network immediately increases the number of suppliers that can be assessed for risks and resiliency.
–Customers draw on a library of 30 existing risk surveys—refined and vetted over many years—or customize their own surveys. To accommodate global supply chains, surveys can be translated across 32 languages.
–All supplier risk data is integrated in one application, weighted by the customer’s criteria and KPIs.
–And that application provides an easy-to-use platform to identify hidden points of failure and initiate risk mitigations in collaboration with suppliers.
Using Resilinc’s platform, large companies in many industries have been able to dramatically improve their assessments of supply chain risks and build more resilient supply chains. One customer, a global technology company, has implemented a unified supplier risk assessment program tied to its KPIs. Another, a global consumer products company, uses our platform to measure its suppliers’ CSR and sustainability performance—flagging non-compliance and supporting troubled suppliers to improve.
During the pandemic, after launching a Pandemic Readiness Assessment, several Resilinc customers learned that their suppliers in other countries had been forced to close because they weren’t considered “essential.” By communicating with local authorities, these customers enabled their suppliers to stay open—thus avoiding supply disruptions and enhancing their relations with these suppliers.
Even before the pandemic, un-mitigated risks in supply chains were costing large companies enormous sums. The supply chain specialists at McKinsey have calculated that large companies typically lose the equivalent of two quarters of profit every decade from supply chain disruptions—and that a 100-day supply disruption, which is not uncommon, can easily destroy 30 to 50 percent of one year’s EBITDA.
For decades, we’ve been focused on engineering our supply chains primarily to reduce costs. In the process, we’ve built in excessive, often hidden, risks. The pandemic has certainly served as a wake-up call for supply chain leaders worldwide that they cannot remain complacent about risk. There has never been a more opportune time for procurement and logistics professionals to convince their C-suite leaders that now is the time to invest in a cohesive supplier risk assessment program that goes beyond tier-one. Once companies start seeing supply chain resiliency as a growth investment opportunity, it can change how they perceive the dollars needed to be spent in supply chain risk management.
Want more information on building a cohesive supplier risk assessment program? Download our Playbook: 5 Advantages of Assessing Supplier Risk with Resilinc.