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Avoiding any type of risk that could adversely affect the company’s net revenue is top of mind among leaders and decision-makers across the business functions their company shares. Procurement has the strategic position to reduce, mitigate, and address these risks through rich, actionable insights derived from analytics.
Implementing the golden rules of supplier risk management is a good initial step in creating a platform necessary to thoroughly understand what to do so organizations can avoid exposure to external risks. These rules encompass building a platform for integrated business continuity plans (BCPs), supporting strategic sourcing activities, streamlining risk profile and escalation processes, and deploying a governance and monitoring body.
Their timely and efficient implementation — both at strategic and operational levels — is necessary. Failure to enable these capabilities can have a negative impact to the organization’s net revenue and brand reputation. Procurement or third-party risk management leaders are in a pivotal position where they must use analytics-driven insights to proactively identify sources of risks or threats and execute BCPs when and where appropriate, and by the right teams. Procurement also needs to immediately articulate the magnitude of a risk’s potential impact and the support needed to mitigate it.
Case study: Net revenue risk management
Lingaro collaborates with global procurement organizations not only in digitally transforming their business processes, but also using analytics to track and minimize third-party risks. In this instance, Lingaro worked with a Fortune 500 consumer-packaged goods (CPG) company to create a solution that looks deep into how its supplier base could put its best brands and products at risk, and therefore, its revenue.
Challenge: Visibility into the financial impact of materials from suppliers
The CPG company’s chief procurement officer wanted to streamline all necessary elements to have clearer strategic and operational visibility into the impact of risk from materials and suppliers to the company’s most popular brands, products, and markets.
Lingaro partnered with the CPG company to develop an end-to-end reporting solution that:
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Systematically evaluates the impact of the unavailability of materials into the company’s brands.
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Collects and connects cross-functional data into procurement’s data repositories.
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Brings significant amounts of key information related to the revenue of stock-keeping units (SKUs), the bill of materials in the SKUs, material specifications, and material suppliers.
Solution: Supplier risk management dashboard that analyzes net revenue
The reporting solution has the following core features:
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Capability to reflect the conditions and business rules defined specifically to understand the risk levels of suppliers based on external risks and what they meant internally in terms of revenue
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A detailed view of key metrics that lets the company’s teams see the overall percentage of suppliers with high-risk profiles
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Visualizations of KPIs and metrics that can be drilled down into geography or location and category risk level
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Visualization and analysis of portions of the total spend across different categories at high risk, the percentage of net revenue at risk, and the total number of SKUs at risk
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Contextual views of the SKU revenue across the world along with the importance of suppliers in each region and business unit
Value delivered: Single source of truth for sourcing and business continuity strategies
The solution is designed for flexibility in data integration and visualization as well as seamless cross-functional coordination and discussion:
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A single source of truth reinforced the effectiveness and accuracy of sourcing strategies and decisions — from the company’s CPO, regional leaders, and risk and category managers to cross-functional stakeholders.
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The reporting solution helped in significantly reducing potential risks by identifying them early on.
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The solution played a pivotal role in defining BCPs where levels of risk are classified based on brand revenue and sensitivity to other risks profiles.
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The company’s procurement function became more efficient by streamlining the process of understanding threats, communicating with data, and facilitating corrective actions across the organization.
Third-party risk management through data and analytics
The synergy of internal and external data for driving necessary insights requires purpose, collaboration, and partnerships. Integrating data directly from specialized risk management vendors (via APIs) reduces the cost in licenses as well as support and integration with other systems.
As today’s market offers more sophisticated and specific information about certain types of risk, organizations needs the capability to connect data from different, multiple sources to align with the business’s priorities. This also helps save costs compared with setting up additional systems.
Data integration, analytics-driven insights, and visibility into risk signals are critical. However, a comprehensive approach to using data is vital. It’s the role of the risk manager to embed these within the sourcing process so they can provide timely input into the supplier market. They can also better understand what conditions to include while negotiating contracts and strengthening the company’s partnership with its suppliers by addressing risks that they face in common.
Data and analytics can help organizations develop meaningful ways to foster transparency and accountability, clearly define insights into supplier risk management, protect their business, and mitigate disruptions.
Lingaro Group’s supply chain analytics practice provides data engineering and advanced analytics services for logistics, warehousing, and transportation that enable enterprises to drive cost efficiencies and enhance service levels and operational efficiency. Lingaro helps organizations use data to gain end-to-end visibility in their supply chain that, in turn, enables them to accurately forecast demand, enhance resilience and responsiveness, maximize inventories, optimize resource allocation, streamline routes, minimize waste, and generate savings.
