Wie fit ist Ihr Einkauf?

In a series of ten regular posts published by the Procurement Leaders Global Intelligence Network I looked at the different facets to transform procurement to a partner of choice

Part 6 - supply chain risk management

2013-03-21 20:58


March 2013

Thought Leaders is a series of regular posts from experts from across industries and regions, looking at the issues procurement faces today. This is the sixth in a sequence of posts by former Deutsche Post DHL CPO, Hugo Eckseler looking at new and innovative solutions to pave the way to the next performance level in procurement. 

In a hit parade of the top procurement issues over the last 5 years supply risk management would be probably #1, triggered by the global financial and economic crisis in 2007/2008. In a survey of Roland Berger (“Purchasing Excellence 2011”), 82% of the interviewed procurement executives stated that risk management is of very high importance to them - compared to just 43% in 2003. And the latest monthly “Procurement Intentions” poll of Procurement Leaders from March 2013 shows that not one CPO intends to reduce the amount of time they spend on risk management over the months to come. The overwhelming majority still see this time portion increasing.

The scope of risk management has changed as well. Ten years ago the mindset of many procurement managers was mainly on credit ratings for selected suppliers, a pretty narrow and past oriented focus. Today - particularly in manufacturing industries like automotive and electronics – supply risk management is a complex management task that requires the collaboration of several departments and disciplines “beyond procurement” to cover the various forms of supply chain risks and vulnerabilities. It is often useful to consider categories of risks as a starting point to guide organizations in an initial assessment of their exposure:

·         Financials, e.g. bankruptcy of suppliers, exchange rate and interest rate fluctuations

·         Supply Markets, e.g. component/raw material shortages, commodity price volatility

·         Natural/Hazard, e.g. earthquakes/tsunamis, fire, flood, hurricane, epidemic

·         Political/Legal, e.g. collapse of national governments, export/import restrictions,  
      protection of intellectual property, tax structures, new regulations, corruption

·         Social/environmental, e.g. strikes, child labor, shortcomings in occupational safety and
      environmental protection

·         Operational, e.g. transportation and storage risks, capacity constraints, quality problems,
      machine downtimes, IT disruptions

The impact of supply problems on a company’s business can be catastrophic, as well as the threat to the brand caused by bad headlines in newspapers or internet forums about violations of social and environmental standards by suppliers or sub-contractors. That’s why top executives expect CPOs to take proactive actions and prevent the business from severe financial and economic damages.

In view of the risk exposures due to today’s Global Sourcing practices, it needs a lot of data to identify risks, rate them according to their criticality and define the appropriate mitigating measures - across countries, locations and tiers of suppliers:

·         But how to find the relevant data sources?

·         How to filter important information from unimportant and avoid “information overkill”?

·         How to combine/aggregate data and form executable information out of it?

·         How to ensure continuous and efficient updating of the database and to create meaningful
      early-warning indicators?

Based on my own experience it’s hardly possible to ask a category manager to build and maintain such a risk management system on his own - on top of his existing procurement tasks. Fortunately, there are new and smart external solutions coming up like the one I encountered recently ( that provide a professional platform by combining social media intelligence from various sources like credit ratings, embargoed countries/companies, corruption indices as well as professional risk management tools. Implementation times are short, the interface looks very user-friendly and SaaS-models limit the need for major investments.

Conclusion: The key risk management challenge is to get a grip on the complexity of worldwide supply chains and identify the “hot spots”. The first step is a systematic screening and segmentation of the supplier base to keep time and effort manageable. The critical suppliers and the related supply chains then have to be “x-rayed” in all risk categories to quantify their exposure and define appropriate mitigation actions. In most cases this will require the involvement of the relevant suppliers and sub-suppliers and access to risk data from many disciplines on a global scale.  

Hugo Eckseler has been working more than thirty years as CPO and manager in manufacturing, logistics and quality management at Deutsche Post DHL, 3M, WELLA and other multi-national companies. Today he works as senior consultant looking for innovative solutions in procurement and supply chain management. 



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