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. Furthermore, disruptive events caused by third parties can have financial, reputational and even legal consequences.
These types of disruptions are very common. Indeed, 84 percent of businesses have suffered from some form of supplier failure in the past two to three years, according to research conducted by Forrester Consulting for Tungsten Network. The study, “Supplier Networks Enable Innovative and Streamlined Supply Chains”, found that the most frequently cited impact of supplier failure was financial, with 30 percent of the respondents reporting a loss in revenue or business partners. Other impact areas reported by more than 22 percent of the respondents were higher insurance premiums, damaged reputation/loss of customer trust, and significant legal/regulatory fines.
Despite these experiences, only 23 percent of the respondents said their company has achieved “mature” supplier-related processes, which involve monitoring and analyzing their suppliers with clear data. When respondents were asked about their company’s approach to conducting due diligence on suppliers and ensuring compliance with regulations and corporate social responsibility policies, just 12 percent of businesses scored the highest level of “optimized” maturity, where processes are constantly monitored and improved to maximize performance.
At the other end of the spectrum, more than a third (35 percent) of the respondents said their organization operates on an ad hoc or non-existent basis, revealing “low process maturity.” This approach to due diligence, in turn, leads to a lack of defined relationships, aggregation of information and methods of measuring expenditure, which results in poor sourcing decisions, the report explains.
“Today’s digital world affords buyers and sellers the opportunity to more effectively use their data and manage their interactions,” says Rick Hurwitz, Tungsten Network’s CEO. “Both buyers and suppliers in our study shared a host of challenges in meeting their company’s objectives, including increased cyber fraud, siloed customer data, insufficient cash for investment, and legacy technology systems. Clearly, many businesses are struggling with inadequate processes and supplier failure hits the bottom line.”
The good news is that the study’s findings also show companies are working to improve supplier management to minimize disruptions. For example, 33 percent of the respondents said that improving technology for collaborating with suppliers was a top priority over the next 12 months for their company, and 25 percent said the company intends to aggregate and analyze data sources to improve context and decision making.
Monitoring and analyzing suppliers is critical, but companies also need the ability to put the correct response in place when there is a disruption. 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.
What are your thoughts on supplier failures? Does your company continuously monitor suppliers and analyze their performance?