Managing Supplier Risk

in the Time of Pandemic Disruption 

Risky business can mean different things, the Tom Cruise movie of that name being one extreme. Supplier risks, on the other hand, are uncertainties with negative consequences for your business, your customers and ultimately your organization’s brand. Supplier risks can be financial, geopolitical, and supply chain related. These risks need to be mitigated, and the residual risk that remains after mitigation also needs to be managed. COVID-19 drastically disrupted many of our supply chains and as we start to recover from the pandemic, managing supplier risk effectively is key to protecting us from future supply chain disruptions.

In the context of the COVID-19 global pandemic, we’ve seen the following supplier risks emerge: 

• Viability or financial stability;
• Operational risks from cutting corners to save costs or reduced capacity;and
• Unreliable delivery of services and goods due to social distancing measures or transportation distribution slow-downs.

As we start to recover from the pandemic, how can we protect our supply chain from these risks? Specifically, what can we do in the short-term, and what should be a long-term focus, to mitigate these risks?

Short-term Supplier Risk Management:

• Gather information on your supply base, based on risk categories; and
• Apply tactical corrective measures (such as switching to alternate suppliers), for cases where the risk is clear and presents an immediate impact.

Long-term Supplier Risk Management

• Review post-pandemic global supply chain trends, and align strategically with suppliers who demonstrate adaptability;
• Use advanced data analytics. Multisource supply chains that include layers of sub-suppliers pose extreme challenges to map and observe —particularly when using traditional investigative means during a pandemic! For this reason, advanced data analytics capabilities are critical to supply chain screening and risk scoring to alert your organization when a supplier’s profile, practices, or relationships create unacceptable risks; and finally, 
• Create customized dashboards. Effective supply chain risk management solutions require powerful visualization techniques and dashboards calibrated to unique organizational requirements. These secure, customized tools facilitate executive decision making and day to day supply chain monitoring by fusing together various information inputs and creating linkages across large groups of data. 

So, how are we enabling our clients to manage these risks and successfully navigate uncertainty? Here’s a case study of some recent work we completed to manage supplier risk: 

Managing Supplier Risk Leveraging SAP Ariba: Chemical Manufacturing Client

At a major bulk chemicals manufacturing company, PwC implemented the Ariba Base Risk module to allow buyers to subscribe to categorized risk feeds per their individual requirements. A standard risk scoring mechanism was configured to score suppliers by risk categories (financial, operational, environmental & social, legal & regulatory), and the scores are automatically calculated from these risk feeds. We configured the Ariba Engagement Risk module to enable their strategic sourcing team to pre-qualify and shortlist suppliers as an RFx pre-step. Compliance Group approvals and internal and external assessment questionnaires based on risk controls were also configured.

Further to the approach outlined above, we now also have to incorporate Pandemic Disruptions into the Risk Management Process.

Most of the supplier risk impacts caused by COVID-19 were operational: plant disruptions and shutdowns, branch shutdowns, and inventory shortages. Financial concerns (viability of supplier businesses) were a second order impact. Further to that, regulatory and legal matters (e.g. faulty masks and other PPE) were also key concerns. Going forward, risk management solutions and systems also need to incorporate risk controls that take pandemic disruptions into account. Effective use of controls can help us stem the tide of pandemic disruptions by applying mitigative measures.

Lessons Learned

The ultimate goal of Supply Chain Risk Management is to create an effective means to identify and mitigate third party business risks through the delivery of actionable intelligence adapted to meet your unique requirements. While the effective use of advanced data and analytics tools are an essential element of an effective solution, at PwC we know - and our clients will confirm - that the ability to deliver effective capability relies on much more than just technology. It relies on creating an organizational framework that allows our clients to define their priorities and guides them on how strategic supply chain risk management decisions should be made. All said, it is certainly challenging to tackle supplier risk and manage it effectively during pandemic disruptions, but with the right approach and toolsets, and guided by strategic thinking, we can do it.