There are many benefits to having a global, multi-tiered and lean supply chain. At the same time, their use also makes companies more vulnerable to supply chain disruptions as suppliers and partners experience everything from financial problems to extreme weather or even natural disasters. To better help companies prepare for such risks, some firms offer services that identify and analyze third-party vulnerability.
For example, KPMG Spectrum, a division of KPMG, offers a supply chain intelligence service using software known as Third Party Intelligence, which draws on data sources including financials from thousands of third parties in 90 countries, as well as millions of news feeds, websites and blogs from 48 countries. The firm recently added earthquakes, social unrest and other events to the list of monitored conditions. Instead of filtering and presenting data to clients, it instead uses algorithms to pinpoint and project vulnerability trends in individual third parties and the countries in which they operate, KPMG explains. Analysts then assess the risk and notify clients when there may be growing risk.
“Many executives try to monitor disruptive events caused by third parties in real-time, minimizing their ability to react quickly enough to contain resultant damage—whether financial, reputational, legal or otherwise,” says Larry Raff, Head of KPMG Spectrum. “In the current environment, real-time is no longer fast enough. Third Party Intelligence allows us to alert clients to vulnerabilities in advance, giving businesses the insight to act ahead of time and potentially avoid disruption altogether.”
Noha Tohamy, vice president of research at Gartner, says in a recent Wall Street Journal article that one result of supply chains becoming more distributed and global is that manufacturers now work with much smaller suppliers, which are more difficult to track. Consequently, larger companies see a need to use big data and outside data to better understand risk exposure. They want to combine information they have of their own supplier performance with what’s happening with weather, political unrest and other conditions to devise mitigation strategies, she says.
The market for such services is still small, Tohamy says in the WSJ article. Companies want more visibility into their supply chains, but it can be challenging to track distant suppliers. It’s also difficult to make a business case for such investments when other projects, like reducing inventory, solving productivity issues or gaining transportation capacity, compete for the same funds, she says.
“The economic impact of day-to-day issues often exceeds the cost of headline-grabbing events like the earthquakes in Japan,” Tohamy says.
There’s no dispute that it would be helpful to receive a warning alert that an event such as a port strike near a key supplier, for example, or that socio-economic tension in the region is on the rise. The other side of the coin, however, is that implementing the correct response to such events is even more important.
The capability to put the correct response in place carries its own demands. Indeed, the ability to respond effectively to an unanticipated supply chain disruption—or to respond to an anticipated supply chain disruption—by implementing the proper mitigation strategy requires a combination of capabilities which first enable organizations to correctly identify risks, and then trigger an alert so all personnel who need to respond receive immediate notification. Determining the correct response also requires using “What-if?” modeling of different resolution options to determine their possible impact. In addition to facilitating collaboration and communication among key personnel, the ability to implement the correct response also requires providing clear guidance so key personnel can compare possible resolutions to determine which one best meets organization objectives.
Does your organization analyze third-party vulnerabilities? Also, is it ready to respond quickly to supply chain disruptions?