In a period of unprecedented global disruption, no organization is immune to the challenges that threaten supply chains and operational continuity. But risk can be mitigated by building resiliency as an imperative — an objective for which procurement organizations are uniquely placed to achieve.
“Procurement has a very good opportunity to create resiliency for certain risks that exist within the supply chain,” says Vijay Yalamanchili, Partner, Partner, Supply Chain & Operations Consulting, Ernst & Young LLP. “We're seeing a shift of those organizational capabilities in procurement, going beyond the sourcing and purchasing, and really starting to focus in on other areas like contracting excellence and supplier risk analytics.”
Risk comes in many forms, but can largely be defined under five categories, as identified by Chris Windfelder, EY-Parthenon Managing Director, Ernst & Young LLP: changes in customer preferences; adoption to technology and associated cyber vulnerability; geopolitical turmoil and governmental regulation; brand perception and social media; and unforeseen supply shocks, such as COVID-19.
“Building resiliency in your supply chain helps to mitigate, or at least understand, where your risk may be across those five overarching profiles,” Windfelder explains. “The first step in which we often work with clients is to understand the vulnerability within their own supply chain.”
“Building agility within an organization’s operating model is a really key next step,” Yalamanchili adds. “Developing operating models that both take care of the day-to-day and are also at the ready to quickly act on and mitigate any potential risks is important, and a large part of what we’ve been developing with our clients.”
As Windfelder notes, Tabletop exercises and stress tests can be invaluable tools in understanding where an organization’s biggest risks lie “You begin to understand what true risks are more than likely vs. less than likely. From there, we prioritize to make sure we're being more proactive vs. reactive. It really all starts with trying to laser in on which risks are most likely to occur, while also understanding that there's always an unknown."
Strengthening partnerships is also key in today’s market where the more stretched supply chains and procurement ecosystems become, the more options suppliers have. “To become an established partner with a vendor base, you have to be a good customer,” says Yalamanchili. “In this particular supply market, the vendors who have the capabilities that you may need within your own supply chain have options. To some extent the power has shifted somewhat. Providing a true understanding of how you as a customer can add value to your vendor is equally as important as your vendor adding value to your own market — especially with regard to mitigating risks throughout the supply chain.”
Data is the final tool procurement organizations must leverage when building true resiliency. “Both the data within the organization's ecosystem and the data that's outside of that ecosystem are equally important,” says Windfelder.
“We're working with many of our clients to understand how they capture data, how they enhance the data that they already have with automation and AI, and then how they bring in the external information that is most valuable to their organization, because there's usually a cost in doing so. These are the key elements of data and analytics that are absolutely critical for driving all the outcomes that are related to risk and building that resiliency.”
This Publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.
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