Supply Chain Risk Management for the C-Level

A huge element of supply chain risk management is managing supplier risk, and that makes this a core area for the Chief Procurement Officer and his or her team. Whether it’s about vetting suppliers before they’re onboarded or monitoring them to make sure you’re not surprised by a sudden bankruptcy or shutdown, these tasks are owned by the procurement organization—and having a team that executes them successfully is critical to the success of not only the department, but the company as a whole.

If you are a CPO, have a CPO or report to a CPO, here are 5 questions your company should be able to answer. All of them are critical to making sure that your function can keep on functioning, and all of them can be answered with a good supply chain risk management program. (To get a true vision of what a risk-aware procurement organization looks, check out our guide to being a risk-aware CPO.)

The job of the Chief Supply Chain Officer is to improve a company’s supply chain planning processes—and to do it on an ongoing basis, continuously improving. This includes all kinds of measures, but is often linked to the use of supply chain technology, especially in this age of digital transformation.

If you’re a CSCO tasked with the job of making your supply chain run more smoothly, than risk management is an aspect that you shouldn’t overlook. Don’t make the mistake of accepting that risk is inevitable and there’s nothing you can do about it.  Realizing that it is possible to predict risk and to take advance action against it is one of the best ways to improve your supply chain planning processes, and to make sure there are no obstacles keeping you from getting your goods to your customers. And even if you are looking at risk management, it’s possible that you’re only looking downstream—don’t forget that, for full transparency, you have to look in two directions!

The Chief Financial Officer may not be directly in charge of the supply chain, but here’s why he or she still has to care about it: Because a supply chain risk is a risk to your P&L. According to the Business Continuity Institute’s 2018 report, financial impacts are the most common effect of supply chain disruptions. A supply chain can also be a threat to regulatory compliance and your business’ image as a responsible corporation, which can hurt your reputation and lose you market share. (In fact, having a corporately responsible supply chain can improve your bottom line and revenue outlook: Some studies show, for example, that the potential value corporate responsibility and sustainability initiatives can bring an organization include a 20% increase in revenue and a 4-6% increase in market value.)

Imagine, for example, a scenario where a major snowstorm shuts down one of your main manufacturing facilities, halting production and stopping you from getting your goods to your customers. It may not be on you to keep that plant running—but it’s definitely on you to deal with the financial repercussions of it not running. As a CFO, you better bet that it’s in your best interest to take action against supply chain risk.

Ultimately, the job of the Chief Executive Officer comes down to one big thing: Keep the business running well. Now consider this fact: 30% of companies that experience a major risk event are out of business within 24 months of the event (Schlegel and Trent, Supply Chain Risk Management, CRC Press, 2015).

According to the Business Continuity Institute, companies who experience supply chain disruptions commonly experience resulting negative consequences such as an increased cost of working, a loss of revenue, damage to brand reputation and more. To mitigate these effects—or perhaps even avoid them entirely—a full-fledged supply chain risk management program is an absolute necessity. As a CEO, you care about your business—so you should also care about supply chain risk.

As you can see, supply chain risk is a problem not just for procurement, but for the entire company. To learn more, check out our guide to Supply Chain Risk Management for the Enterprise.

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