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Software tools alone won't help procurement managers to avoid supply chain risks

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by Jagdish Unni
17 September 2014

Business landscape is becoming complex by the day. Due to globalization and the advent of supply chain integration across very many layers, a company cannot easily predict from where the next danger will pounce on them. Risk management assumes significance in this scenario.

There are various forms of risk management - financial, enterprise, operational, supply chain and so on. Let me focus here on supply chain risk management as I am closely associated with it.

Supply chains of various industry verticals are already facing challenges such as rising bankruptcies, debt overload, economic uncertainty, geopolitical uncertainty in Middle East and dodgy consumer demand.

Besides above macro factors, organizations also have had to deal with product recalls and natural disasters that are periodically causing supply disruptions. No company would want to experience disruptions to their supply chains as it has wide ramifications.

To cope with such shape-shifting scenarios, companies have begun to rely on software tools that would help them with some aspects of supply chain risk management. While listing out tier 1, 2 and 3 suppliers, these tools merely act as repositories of supplier risk and offer no actionable insights.

On the face of it, the services offered by these tools does seem interesting. But has anybody thought about the hidden challenges in deploying these tools? The answer generally is a No.

The foremost challenge is who will provide the necessary information and insight to power these tools? And who will input all relevant, vetted information into these tools? In short, who will "program manage" these functions? Most information that goes into these tools are voluntarily disclosed by the suppliers themselves. And some of them are fed by the companies. But how many suppliers actually comply? The ball park figure is about 50%. The question to be asked is how many of those suppliers who have not given sufficient information are actually critical to the company's supply chain?

The tool may provide the financial numbers of the supplier. But it won't offer key insights as to whether the raw material that is critical to the buyer is actually integral to the supplier's business.  A particular raw material could be vital to the company's supply chain -- but if it isn't a central product to the supplier then there is always a possibility of a supply disruption. The software tool doesn't necessarily spell out such complex relationships.

For example, in the recent past, certain large packaging suppliers have closed down one or more plants. The risk management software would have informed the users about such shut downs after that event has occurred; but it would do so without telling the user how much of an impact such closures would have on the company's supply chain. Also, how many of those tools would have actually anticipated such possible shutdowns before the event's occurrence?

This is where supply chain risk management tools, despite delivering certain benefits, falls short. I am not saying such software tools aren't important. They do have some use; but what is required is a parallel service to go along with the tool. What do I mean here by "service?" Let me explain:

Tools will give you numbers; but you need a person behind the tool to analyze those numbers; you also need a well informed analyst to analyse the prevailing supply situation to the client's requirements. Whereas the tool does not offer analytics on the supplier's relationship with the client. In other words, insights such as how important the client is to the supplier and how crucial is a raw material to the supplier's overall business is not known through the tool.

So by service, I mean that you need human insight to go with the data provided by the tool. Data without insight would only present an incomplete picture.

Please note that I am not against any supply chain risk management tools per se. I do agree that they fulfill a need gap. But what I am saying here is that a hundred percent dependence on tools isn't advisable as it would not show the whole picture of the supply ecosystem.

Along with software tools, global category managers will fully benefit from actionable insights provided by expert analysts. The wall is only as strong as the man who guards it.

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