Tony Harris, Global Vice President and General Manager at SAP Ariba, discusses the pitfalls one can face when ignoring the importance of risk management.
Risk management is generally thought of as a buyer initiative. But as recent high-profile bankruptcy filings have brought to light, it is imperative that suppliers monitor and manage their risk as well, because the impact of not doing so can be far-reaching.
The risks presented by the loss of a key customer can ripple across a multi-tier supply chain and beyond just demand and revenue, affect job creation and economic development globally. Suppliers of board games in Illinois, for instance, many contracts with manufacturers in China to produce them. With the holiday shopping season upon us, these manufacturers may have ramped up hiring to accommodate increased demand. But what if the primary supplier, in anticipation of the worst, revises their forecast and scales back on shipments. In turn, their suppliers will cut production and staff. Localities will see fewer jobs and feel the pinch of less tax revenue generated by the sales and exports.
There’s no doubt that what you can’t see can hurt you. But in today’s connected, digital economy, visibility and transparency have never been easier to gain – even across complex, global supply chains. So not knowing that a supplier or customer is on the brink of collapse or even that a hurricane may cause power losses and port closures is no longer an excuse. The expectation remains that the suppliers will deliver, and if they don’t, the buyers will simply go elsewhere.
When it comes to managing today’s global supply chains, companies on both the buy and sell side of the equation must anticipate risks and develop plans to execute on them before they negatively impact business. And technology exists to make this easy to do.
Social networks have revolutionized the way we shop, share and consume. Likewise, business networks have made it as easy and transparent to conduct business with a partner on the other side of the world as with one across the street.
But networks are about more than just connecting companies, people and processes. Their real power lies in what goes on inside them – all the interactions, transactions and commentary – and the massive amounts of unstructured data that they generate.
With business networks, buyers and suppliers alike can gain a whole new level of transparency into the capabilities, performance, and social and environmentally responsible practices of their trading partners – and their partners.
The latest technology advancements such as machine learning and artificial intelligence can analyze data from millions of sources on an ongoing basis and provide a 360° view of a buyer or supplier’s health and automatically deliver alerts on risk by company, geography, and even commodity. Using these data-driven insights to their advantage, companies can make timely, contextual decisions to effectively manage their risk and move their businesses forward.
They can, for instance, be alerted to potential future risks in the sub-tier of their supply chain by triangulating a myriad of real-time inputs such as change in payment status, loss of a key customer or decline in sales, change in leadership, commodity price or supply fluctuations crossed-referenced with historical results when such patterns exist.
Buyers can supplement these alerts with recommended responses such as alternative suppliers based on community-generated ratings and buying patterns of other like-buyers on the business network. And suppliers can use them to find new outsource partners to keep their production costs down and even tap into opportunities for new business with other companies on the network to grow their market share and revenues.
In today’s uncertain economy, risk is inevitable. The only thing that is certain is that companies will face more risks and challenges than ever before – from bankruptcies to natural disasters, to shifting trends in commerce. But with the right tools and a mindset to be agile, they can effectively manage and overcome them or even avoid them in the first place. Knowledge is power. And through business networks and the technology underlying them, buyers and suppliers can effectively harness it to not only see the future but shape it to their advantage.