The Business Problem
The client is a well-renowned company in the consumer packaged goods (CPG) industry and produces a wide range of products in the beauty, grooming, and household care units. The client’s business units were spread across 50+ countries across the globe. However, they were facing challenges in price and quality benchmarking for their products and machines. The need to identify suppliers who were critical for their business processes and associated risks compelled them to engage with SpendEdge. The key aspects they were looking to address through this engagement were:
Risks Associated with OEM Supplier and DFC Rolls: The double face corrugated (DFC) rolls used during shipment to prevent boxes from getting damaged lacked superior quality. In addition, machine cutting consumables were directly purchased from the original equipment manufacturer without any price benchmarking; thus, increasing the possibility of supply chain risk.
Cost of Reusable Gloves: The single-use gloves used by the client were becoming cost prohibitive and they were facing challenges identifying new suppliers who were within their budget limit.
Improving your supplier identification process can help you achieve substantial growth. To know more about how we can help your business with our supply chain risk management solution, request a free proposal below!
Solutions Offered and Client Journey
The experts at SpendEdge carried out a comprehensive risk assessment and identified suppliers who were critical for the company. In addition, they identified risks associated with key stakeholders and those associated with supply capacity, fluctuation in supply capacity, and their subsequent impact on prices.
In a span of three weeks, the experts at SpendEdge offered a solution to improve the client’s supply chain risk management capabilities. They also recommended utilizing an existing and pre-approved chemical supplier to provide/produce nitrile reusable gloves. The insights offered helped them to identify appropriate suppliers and evaluate their performance proactively. With our help, the CPG company was able to secure alternate suppliers and reduce the likelihood of supply chain disruptions.
Key Findings and Outcome
SpendEdge’s supply chain risk management service enabled the client to identify new suppliers and assess their delivery capabilities. The initiation of quality testing and price benchmarking helped create competition among the existing suppliers and provided opportunities for efficient contract management. The supply chain risk management solution helped the client to:
- Achieve cost savings of more than $9,000, while exploring the usage of reusable gloves.
- Reduce dependence on OEMs and achieve cost savings of more than 11%.
- Shortlist suppliers with low financial risk and identify cost-saving opportunities.
- To know more about this engagement, get more info.
Types of Supply Chain Risk
Why is Supply Chain Risk Management Important?
Supply chain risk management is an essential part of any strategy and plays a crucial role in determining the financial health of any company. It helps determine the success of your business by helping you to proactively strategize plans for business risks. Supply chain risk management is imperative for companies looking to ensure the smooth functioning of their business units. To know about supply chain risk management best practices, click here.
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With the globalization of supply chains, the number of third-party logistics (3PL) providers has increased, substantially. However, business strategies such as outsourcing, supplier consolidation, and low-cost sourcing offer immense opportunities but have several risks associated with them. This has forced decision-makers to think about why is supply chain management important and what are some of the best practices to mitigate supply chain risk.
At SpendEdge, we understand the risks associated with a global supply chain and to help companies answer questions such as “why is supply chain management important?” and “how to mitigate supply chain risk?”, we have listed below some of the best practices for managing a supply chain.
Why is Supply Chain Risk Management Important?
With companies across the globe focusing on becoming more efficient, supply chains have become extremely vulnerable to risks. Most firms fail to perform an effective supply chain risk assessment before outsourcing their products and services. At times, they simply rely on annual risk registers, which are usually created for insurance companies. A failure to identify and minimize these risks can lead to supply chain disruptions and profit losses. By improving supply chain risk management capabilities, companies can easily analyze dynamic factors that may lead to risks.
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Supply Chain Risk Management Best Practices
SpendEdge has identified some of the best practices to help companies manage risks in the global supply chain and achieve better consistency and value. They include:
- Innovations in contract management: Companies can adapt to newer styles of contract design rather than following old-styled onerous ones. This will enable them to streamline contracts by understanding the significant cost of creating and negotiating old-style “legalese” contracts.
- Supplier insurance and limitations of liability: Organizations using external suppliers for products or services, either upstream or downstream, necessarily need to evaluate potential liability exposure. Every contract must have provisions of protections by limiting liabilities, ensuring security against legal liabilities, and insurance of suppliers.
- Visibility of suppliers’ financial stability: By leveraging predictive financial stability data, companies can gain highly positive SCRM visibility to a firm’s management team for free. Additionally, it can warn procurement professionals of potential supply chain failures.
SpendEdge delivers robust, real-time procurement market intelligence solutions to help sourcing and procurement professionals to improve supply chain risk management capabilities. Our innovative procurement solutions help enterprises to transform the structural capabilities of businesses and improve execution efficiency. Our state-of-the-art supply chain risk management solutions also help enterprises to transform structural capabilities, improve execution efficiency, and achieve better cost savings. We provide businesses with actionable insights and techniques to improve their procurement capabilities.
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Why is supply chain risk management important
Supply chain risk definition
Risk refers to the probability of any undesired event caused due to external or internal vulnerabilities which can be avoided by using preventive actions. Supply chain risk includes any type of risk that is associated with a company’s supply chain. These risks may be anything ranging from natural calamity in a region that the organization procures raw material for production activities to transportation strike due to which finished goods cannot be supplied to the market. Supply chain risk is the deviation from the expected or standard performance of these functions. Including demand planning, sourcing, production, supply planning, transportation, and reverse logistics.
What is supply chain risk management?
Supply chain risk management refers to an organization’s coordinated efforts to identify, monitor, detect, and mitigate any threats to supply chain that can consequently affect the company’s continuity and profitability. Cost volatility, supplier financial issues and failures, material shortages, and natural and manmade disasters are some of the primary examples of supply chain risk. Global supply chain leaders use supply chain risk mitigation strategies and software in order to foresee potential issues and adapt to these risks and unforeseeable supply chain risk as quickly and efficiently as possible.
When it comes to supply chain risk management planning, a risk can be defined as a broad spectrum of events, from counterfeit products, natural disasters, supplier delay, to theft, part shortages, production interruptions, and even cybersecurity. Every business has a different array of potential risks depending on its verticals, and each of its product has a different risk portfolio depending on its components. The product lifecycle is influenced by an incredible number of variables. Therefore, a comprehensive supply chain risk management planning is required, and many companies, today, are embarking on the journey to reduce the overall negative impact on the bottom line and effectively deal with unexpected hiccups. For companies that don’t have supply chain risk management plans, their primary objective should be to discover the largest risks and figure out strategies to deal with them. In this article, we have discussed some next-level best practices that can push supply chain risk management plans to another level of value and consistency.
Best Practices for Supply Chain Risk Management
Best Practice #1: Site checks must be performed
There are certain kinds of issues in supply chain risk management that can only be discovered with routine, in-depth personal visits, and an understanding of the culture where production occurs. The routine site visits are one of the most impactful methods of not only identifying supply chain risk but also help in developing contingency plans. Undoubtedly, this can be expensive and time-consuming in the case of a supply chain that reaches overseas, but the outcome can be enormous. This is one of the best practices which ensures that if there are any concerns with unsafe working conditions or quality, the companies can immediately take the necessary steps to revise their risk quantification.
Best Practice #2: Don’t neglect cyber threats
Risks are not always physical but virtual too. There are many stakeholders when it comes to supply chain risk management who assume that supply chain risks come from physical challenges, such as delay in production and shortages, but this is short-sighted. Every supply chain is built on top of IT, whether it is a bill of materials shared between the company and the third-party suppliers, or CAD designs comprising proprietary, patented designs. Therefore, for a better supply chain risk management, companies need to roll cybersecurity risk into the overall supply chain roadmap and prioritize them higher than several physical risks.
Best Practice #3: Ease out supply chain risk with insurance
Insurance companies specialize in risk quantification and working with someone can help procurement companies in their process of putting together proper contingency plans. Some insurance policies cover the own production of the company, such as a custom-built and expensive piece of equipment that would cost millions and take weeks to replace. Therefore, this best practice in supply chain risk management can enable the company to recoup many of the costs involved in case of a critical failure. There are also other insurance policies that cover issues upstream, such as delay in the supply of parts from overseas suppliers. In either case, insurance can never make up for damage to a brand, but it can help lessen the sting of a major supply chain disruption, both in-house and the other side of the globe.
Want to know more about best practices for building supply chain risk management plans? Contact us now!
What is supply chain risk management?
Supply chain risk management refers to the process of undertaking strategic steps to identify, assess, and mitigate risks in the company’s end-to-end supply chain. As businesses both small and large seek to extend their global reach, risk management in the supply chain is increasingly becoming crucial. Businesses that enter into new markets often need to form new supplier relationships, engage with state-owned entities, and adapt to local laws and culture. This results in supply chain complexity that can result in a wide range of financial, regulatory, and legal risks. Supply chain risk management strategies help enterprises to foresee potential issues and adapt to the risks and supply chain disruptions as quickly and efficiently as possible.
Supply chain risk management techniques
Innovation and efficiency in contracting management
One of the emerging trends in supply chain risk management is contract streamlining. It involves having a better understanding of the costs involved in creating and negotiating old-style “legalese” contracts. Many of these are unnecessarily written in legal prose, lengthy, difficult to understand, one-sided protections. But newer styles of contract design and wording enable procurement teams to have a dramatically-higher success rate of executing well-drafted agreements. Procurement contract portfolios are a great example of how legal risks can outweigh business balance, extending the contracting cycle time and procurement efficiency. Instead, several legal and procurement groups find it better to rely on concise and well-balanced contract documents that result in easier acceptance by suppliers.
Better understanding of potential suppliers
It is important for businesses, especially in the global scenario to have a clear understanding of the third-party supplier’s business practices. This involves answering critical questions such as – Does the supplier have a strong track record for meeting contractual obligations? Are there any conflicts of interest in existing business relationships? Do the suppliers observe the same high standards as your company with respect to providing safe working conditions and protecting the environment? It must be ensured that the supplier meets all the pre-requisites of the business before onboarding a new supplier.
Supply chain risk management awareness and training
Supply chain risk management strategies cannot be successful unless significant attention is given to training personnel on supply chain policy, procedures and applicable management, operational and technical controls, and practice. Building an awareness training program provides guidelines for establishing and maintaining a comprehensive awareness and training program.
Resolve or prevent disputes effectively
Disputes are inevitable elements in different stages of the supply chain. One of the key steps in mitigating dispute-related risks and promoting smooth operations is to proactively prevent disputes from occurring or resolving them amicably in case of occurrence. The right processes and technologies are crucial in identifying sources ofdisagreement that can cause disruption in the supply chain. It is important to employ people with the right communications skills and the ability to not affect the ongoing supply of materials. A mutually beneficial resolution is often the best way to maintain a relationship that not only mitigates risk but also enhances value for the company.
Gain more insights into developing the right supply chain risk management strategies for your business
A leading player in the CPG industry wanted to devise an effective and efficient supply chain system to compete in new market segments. To do so, the client approached SpendEdge to enhance their supply chain capabilities and overcome supply chain challenges. A detailed quantitative analysis of various categories within the supply chain was carried out to analyze spend patterns and develop an effective supply chain risk management framework to suit the needs of the CPG industry client.
About the Client:
The client is a leading player in the CPG industry, specializing in the production of a wide variety of packaged goods ranging from paper-based products to food and beverages. Also, having established their presence in the MEA market segment, the client was looking at expanding their operations to newer regions.
The CPG industry client was facing challenges in devising a flexible supply chain risk management framework.
How did SpendEdge Help the CPG Industry Client?
- Step 1: Identifying internal and external supply chain risks
The first and the most crucial step in devising a supply chain risk management framework revolves around the identification of risk factors affecting the organization’s supply network. These risks include both external and internal risks such as supply-side risks, demand-side risks, business risks, environmental risks, and other physical risk factors. A detailed analysis of each identified risk factor helped identify scenarios that are likely to occur, it also enabled the client to answer essential questions such as why they occur and how can the company deal with such risks.
- Step 2: Setting standards for the organization’s supply chain processes
Once the risk factors across the global supply network are identified and grouped into different categories it is necessary to take steps to incentivize the global supply network so as to make it function in the most suitable way to drive maximum value. This means utilizing more than just the traditional metrics and setting new supply chain standards to suit the functional needs of the business. However, identifying the right KPI’s is crucial for any business and revolves around the specific business needs, the market segment, market stability, and fluctuating demand.
- Step 3: Development of a robust supply chain risk management framework
The supply chain risk management experts at SpendEdge devised a three-step comprehensive approach that helped the CPG industry client to gain a holistic view of risk factors across their supply chain. The devised framework also enabled the CPG industry client to enhance the visibility of supply chain processes, which ensured seamless upstream and downstream flow of information.
Key questions answered in this supply chain risk management study include:
Benefits of the Engagement:
The supply chain risk management framework enabled the client to redefine the supply chain strategies to enhance visibility. The solutions offered by our experts also assisted the CPG industry client in devising appropriate supply chain strategies that helped them detect, gauge, and assess risk factors throughout their global supply network.
Importance of supply chain risk management for CPG industry firms
In recent years, companies operating in various industries be it retail or CPG industry have realized the importance of maintaining a robust supply chain management system across their business segments. Players in these industries have also understood that it is the supply chain that deciphers business strategies into day-to-day interactions within and beyond the organizational level. Several such factors have compelled leading businesses in the CPG industry to make strategic investments in enhancing their supply chain capabilities in order to overcome organizational silos.
Moreover, even the well-established CPG industry firms are focused on reinventing their supply chain processes in spite of having achieved a leading position in their industry. This is because by doing so, companies are in a better position to tackle supply chain risks and respond proactively to the fluctuating- economic, technological, and competitive landscape to exploit new market opportunities and CPG industry trends more effectively than their peer groups.
In this supply chain risk management engagement we helped a CPG industry client transform their supply chain performance by implementing a three-step approach. This approach can also be adopted by other CPG industry players to maximize the potential of their supply network.
Leading CPG brands have already transformed their supply chain systems with respect to time and investment. So, what are you doing to turn your supply network into a source of competitive advantage?