By Alex Saric, smart procurement expert, Ivalua.
UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.
Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so UK businesses must be ready to address it. However, many UK businesses simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.
More suppliers, increasing risk
One reason why businesses aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that UK businesses on average are working with around 2,500 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with more than half of UK businesses saying the number of suppliers they work with will increase in the next 12 months.
The expanding nature of suppliers is only going to expose UK businesses to more potential risk than ever before, yet 77% say they face challenges gaining complete visibility into suppliers and their activities.
A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (74%) of UK businesses have experienced some type of risk during the last 12 months. These include; supplier failure (48%), environmental impact, such as pollution or waste (33%), geopolitical changes (25%), and supply shortages (46%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.
Businesses unprepared for the worst
One way businesses can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some UK businesses say they have a contingency plan in place to deal with risk, many of them are unprepared. Given the legislation in place and the size of the fines, it’s perhaps unsurprising to see that more than half of businesses have contingency plans in place for GDPR and security breaches. However, considering GDPR legislation passed in May 2018, it’s worrying that the remaining 43% are yet to finalise plans for GDPR breaches in the supply chain. More broadly, less than half of UK businesses have fully developed and deployed contingency plans in place for; lack of compliance with regulations (49%), supply shortages (40%), identification of modern slavery (39%), suppliers going out of business (37%) and geopolitical changes (23%).
In order to effectively prepare for these types of risks, it’s vital that businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many UK businesses, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.
Making supplier management smarter
It’s imperative that organisations are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure that UK businesses have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.
For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, UK businesses can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.
To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow UK businesses to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for businesses, but by providing the ability to assess suppliers, UK businesses will have all the insights they need to mitigate the impact on business operations.