Global Supply Chains Increase Complexity of Supplier Risk Analysis

Almost seven out of 10 business leaders believe supplier risk analysis will become more complex as they expand into new global markets.

That’s according to research by the Economist Intelligence Unit’s report Strategies for managing customer and supplier risks, sponsored by Dun & Bradstreet.

Two-thirds of the 395 respondents said adverse events associated with suppliers are becoming more frequent and severe.

Half (49 per cent) of those surveyed said “supplier risks are becoming more challenging because their supply chain is getting more complex”, and 36 per cent agreed that an increase in outsourcing essential inputs is creating challenges in supplier risks.

More than half (55 per cent) of those questioned said they collaborate with suppliers to improve performance in identifying and assessing supplier risks. Fifty-three per cent of respondents added that they use personal judgement.

When asked which two strategies organisations rely on to control supplier risks, 38 per cent said they heavily monitor relationships with high-risk suppliers, 37 per cent use contract language that controls risk, 35 per cent limit the scope or scale of business with high-risk suppliers, and 30 per cent have a blacklist of unacceptable suppliers.

The study also found companies that successfully manage risk use a variety of tools to manage specific threats.

“Many organisations represented in the survey are on the verge of implementing more advanced analytics. The majority say that they are using some analytical tools now to navigate through risk data and that they recognise the need for more sophisticated tools to obtain actionable or predictive analytics,” the report added.

The survey found 60 per cent of executives say they want to extract greater business value from risk data but are uncertain about how advanced analytics can help.

The report also encouraged companies to measure risk management as only about half of respondents said their company tracks the outcomes of their mitigation efforts. The survey found 85 per cent of those who track outcomes are successful, compared with 51 per cent of those that do not.

Source: Supply Management

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Complexity Keeps Big Data Out of Supply Chain
Companies see the power of Big Data to parse out increasingly complex risks within their supply chains. But most still see deploying predictive analytics as too costly, according to a new report from the Economist Intelligence Unit.

The Economist’s survey, sponsored by data provider Dun & Bradstreet Corp., included almost 400 executives–more than half in c-suite roles. The study found 51% of respondents believed predictive analytics derived from Big Data will “provide more precise” risk assessments of suppliers. But only 31% are currently using predictive analytics in this manner, according to the survey. “Supply chains are getting longer and more complex,” said Janie Hulse, an editor who oversaw the report. “But many companies are not even good at gaining visibility into their first tier.”

The promise of big data
Companies with successful risk-management strategies use a variety of tools to manage specific threats related to adverse customer and supplier events. Those that use data-driven tools are significantly more likely than those that do not to say they successfully manage both types of risk. Larger firms are far more likely to use advanced analytics to generate predictive risk-management information. Nonetheless, all four groups identified in this report make relatively extensive use of third-party databases, typically in combination with other tools.

As supply chains become more tangled, with a greater number of far flung suppliers, managers are faced with risks that can crop up in dozens of countries. Companies have long used complex data sets to plan manufacturing to meet customer demand. But firms are now looking to combine data from external sources to better predict future risks.

Integrating multiple, disparate sources of external data poses an obstacle for companies looking to make more use of complex predictive analytics, according to Ken Waldie, author of the report. External sources like company credit ratings, data on a country’s political climate and even weather patterns, could all help executives assess the risk profile of suppliers.

That complexity has so far kept the cost of deploying Big Data too high for many risk managers, according to the report. Integrating disparate data sources often means more specialized and high-cost staff. And some companies believe the cost-benefit equation of Big Data still doesn’t add up. Nearly 60% of respondents said they recognized the power of advanced analytics but saw the current costs as outweighing the benefits. “The challenge is to mix multiple tracks. It’s not coming in the same form,” Mr. Waldie said. “The data runs the whole gamut and it’s an awful lot to be crunched in a sophisticated way.”

Source: WSJ CIO Journal

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