Four ways to create supply chain resilience

The fragility of the global supply chain has become headline news. Over the past few years, a host of macro risks have disrupted operations, with recessions, geo-political impacts, inflation, pandemics, and cybersecurity threats topping the list.

The experience has been challenging for the industry, but also instructive, showing us which supply chains have the resilience to adapt and respond to the unexpected—and which do not.

The companies ready to withstand, adapt and respond from Day One were those with ready access to information about who their suppliers are, where they are located, and who can replace them quickly. The companies that struggled were those whose supplier data was siloed, out of date or incomplete.

Most companies used a pyramid methodology to segment their suppliers, grouping those on whom they spend the most (and sometimes those that present the greatest risk) at the top. Unfortunately, this approach results in smaller but equally vital suppliers staying below the radar, trapped in functional silos. The methodology also often fails to consider both the criticality of the supplier and the criticality of that service to the company and its customers. The pyramid risks becoming an iceberg, leaving the vast bulk of the supplier ecosystem submerged and hidden from view—with potentially disastrous results.

Bringing transparency to the supply chain

In a complex, interconnected world, maintaining tier-one and tier-two supplier visibility is not enough. Companies must establish sightlines deeper into the network. Focusing on these four areas can strengthen resilience by supporting that deeper level of visibility.

Data
Every day, more and better information becomes available, enabling you to evaluate the suppliers you work with—or are considering working with—based on their financial stability, cyber security, ESG profile, geographical location, and more. Procurement and risk departments are increasingly accessing and getting better at using this data to identify changes and risks and establish back-ups.

But first, this data needs to be collected, maintained, and delivered in a format that all stakeholders can access and use. For many companies, external providers have become a more viable solution than internal data management because of the scale of the endeavour.

A recent report by State of Flux highlighted some of the challenges of internal data management.

22% of companies use only Excel to manage supplier on-boarding and master data

13% of companies use no system at all to capture and manage this data

Assessments
Assessments play a crucial role in supplier management, but the process involves intensive on-site evaluations in addition to collecting, compiling and analysing publicly available information and carrying out remote evaluations on thousands of suppliers. Trust— but verify.

For many companies, this level of due diligence is difficult to maintain, which is where external providers can provide invaluable support. These providers conduct time-intensive assessments and produce reports that are made available to all their customers—a utility model that supports scale and efficiency.

26% of companies believed that holding more frequent supplier meetings was the key to mitigating supply chain disruptions

90% of leaders (companies with more mature and successful supplier management programmes) have regular scheduled meetings at the operational and strategic level with critical suppliers

Workflow
Workflow technology streamlines supplier management by providing a process for collecting and sharing information across different risk domains to facilitate reporting, running test scenarios, detecting changes, and assessing potential impacts. For instance, when Russia invaded Ukraine, those with systems in place could immediately use them to model the impact.

However, the State of Flux report indicates that internal solutions are not supporting these sophisticated reporting and modelling requirements.

35% of companies say their current supplier management technology solution is inadequate for their needs

Talent
There is a severe shortage of individuals with expertise in supply chain risk, and few companies are taking enough action to identify, attract, and develop the talent needed in this critical area. External providers are staffed with highly experienced professionals who can analyse risks and understand their relationships so that internal teams can focus on their own area of expertise: how to respond to the information.

Only 44% of companies have defined the roles that have regular contact with suppliers at an operational or other level

Only about 33% have developed a skills and competency framework to support the supplier management role

Resilience relies on visibility

Resilience is no longer a choice. It's an essential. Without it, investor confidence and the ultimate value of your organisation is at risk. And the foundation for resilience is transparency—the ability to see across every tier, gain a multifaceted view of each supplier, and mobilise any supplier in your network quickly to address the unexpected.

Learn more about S&P's approach to supply chain resilience. Explore KY3P, an integrated suite of solutions to manage end-to-end third party and vendor risk management.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.