Risk mitigation trumps cost-reduction in 2018 – Victoria Kickham

Political uncertainty and a changing business climate place risk mitigation and brand protection front and center for buyers and supply managers.

Victoria Kickham is a freelance writer specializing in manufacturing, distribution and supply chain issues

A changing global business climate is causing a shift in priorities for buyers and supply managers, as risk mitigation takes center stage for companies large and small. The need to protect against a range of supply threats and disruptions–including regulatory issues, natural disasters, and safety and environmental concerns–is causing buyers to focus more on brand protection strategies while triedand- true issues such as cost-reduction take on a lesser, though still important, role, industry watchers say.

“Historically, procurement and supply organizations would have cost reduction as their primary goal,” says Brian Alster, global head of supply and compliance at Dun & Bradstreet. “What we’re seeing more and more is that they are shifting toward risk mitigation and brand protection.”

An uncertain political climate is contributing to the shift. Alster cites negotiations around the North American Free Trade Agreement, Brexit in the European Union, and one-on-one country negotiations in Asia as key examples, as organizations prepare for potential changes that could affect their supply strategies.

“The challenge here is we’re not sure what these negotiations will result in, but every single one has to do with cross-border business. As results start to come in, the uncertainty itself is a risk,” Alster said in an early January interview. “In terms of global supply chains, the biggest challenge is around the political environment. It is the most critical risk right now heading into 2018.”

Others agree, citing an escalation in risk mitigation strategies since the financial crisis of 2009, when manufacturing organizations, in particular, began diversifying their supply sources and building excess capacity, according Jim Wetekamp, chief executive officer at global procurement software provider BravoSolution.

“[Organizations] are beginning to think more about how to incorporate risk into supplier management,” Wetekamp explains. “Certainly this is growing quickly, and many larger organizations, especially, have processes around this.”

Growing Regulations, Consumer Demands Alster cites two primary reasons for the shift toward risk management and brand protection in the purchasing and supply department: A more complex global regulatory environment and public demand for more responsible supply chains.

“When you see companies getting caught in the media for using a supplier who used a supplier who had forced labor, it [affects] the large corporation that ends up putting the product on the market,” Alster explains. “Our customers are starting to realize they need to put stronger due diligence in place–to onboard, continuously monitor, and if needed, offboard vendors or suppliers. [They have to] monitor for things like forced labor, sanctions, and other issues. They are also looking at principal owners [of their supply partners], trying to better understand who they are and screen them as well.”

And he says the issue is affecting companies of all sizes.

“This is definitely becoming more of a challenge, and not just with the largest companies,” says Alster. “The largest companies that have global footprints in terms of their supply chains are definitely ones that are moving quicker, but I will tell you that we have customers whose supply chain footprint does not exceed a given country but are realizing they need to do this as well–because they are becoming too dependent on the success of a few suppliers.”

Wetekamp agrees, adding that companies up and down the supply chain are taking action–if only to ensure they have policies and procedures in place to address the issues that may affect their companies, either directly or indirectly.

Such policies start with asking good questions at the outset of any new business relationship.

As Alster explains: “The number one thing [companies should] do … is make sure they are continuously building a sound, defensible due diligence program that ensures when they are onboarding a company, they are asking the right questions.”