New types of risks stemming from the supply chain, rather than from in-house operations, have put a strain on traditional Enterprise Risk management departments. A new co-operation between Procurement / Supply Chain and ERM departments is required to monitor these risks and keep them under control.
Let's face it - business is steadily getting more complex, as companies need to deal with increased competition, shortened product life cycles and growing number of variants that target small consumer niches. To cope with this situation, firms have deployed ever more complex and international supply chains, trying to balance between cutting costs and keeping the necessary flexibility.
What does this mean? You are exposed to an increasing lists of risks that have hitherto been omitted - problems with ensuring steady supply, wildly fluctuating prices and - on top of that issues of sustainability, environmental impact and corporate social responsibility. This puts a strain on traditional Enterprise Risk Management - which concentrates mainly on your company and its own processes and which is not equipped with the right tools to deal with external risks that come from hundreds of organisations you interact with.
A typical response we often hear from CPOs and procurement professionals – especially in countries where the profession is still relatively immature – is “I’ve been working for this company for the last 10 / 20 / 30 years and nothing has happened so far.” This is a false sense of security – research by the BCI shows that supply chain disruptions are frequent.
Supply chain disruptions don’t only have a temporary negative influence on production – they adversely affect the whole company through: