Expert Insight: Guest Contribution
By Tim Albinson,
CEO, Aravo Solutions
Date: October 12, 2009

Supplier Risk Management: Aren’t We Already Doing That?


360-Degree Supplier Risk Framework Essential to Predicting and Preventing Supply Chain Disruptions

Unfortunately, natural disasters and financial failures continue to dominate the headlines, so it only follows that supplier risk management remains high on the business agenda. One of our customers recently summed it up in this, his “mantra” for supplier risk management in 2010:

  • Don’t let my suppliers surprise me;
  • Let me manufacture what we sell; and
  • Don’t allow supply chain snafus to negatively impact our brand.

If your job responsibilities include predicting and preventing supply chain disruptions, reciting a mantra like this can’t hurt. But it probably shouldn’t be your only strategy for risk management. You need to take a 360° view.

What is a supplier 360° view? It’s an all-encompassing supplier risk management strategy consisting of three parts: core data, enrichment, and mitigation. The 360° model is more than just a data repository.  It provides a holistic approach for enhancing all aspects of supplier relationships throughout the entire supplier network. Remember: catastrophic supply chain failures don’t only happen to the companies on your preferred supplier list. A failure at even the smallest link will still break the chain.

A 360° supplier risk framework first captures and structures all core supplier data — both static (customer ID, name, tax ID, etc.), and more fluid (insurance and regulatory certifications, credit rating, z-score, etc.). Second, it allows for data enrichment by using third-party sources and internal business stakeholders to augment basic supplier information with valuable insight and input (feedback on quality, missed delivery notification, alternative suppliers, etc.). Finally, the 360° model provides risk mitigation and management by establishing metrics that assess supplier risk and business processes. The model triggers alerts if any metric falls below a pre-configured, tolerable threshold.

Don’t Our ERP and Procurement Solutions Do That?


Many companies believe they gain more control by consolidating all their supplier information into an ERP system and, certainly, ERP can provide a somewhat comprehensive supplier view. However, ERP is used almost exclusively for analyzing supplier behavior (analytics) and ad-hoc reporting. An ERP system is typically a read-only repository of data from many unrelated systems. It receives data in batches and generally does not represent real-time status. These days, global enterprises require a solution that offers not only a comprehensive supplier information view, but also the ability to launch and automate mitigation business processes and corrective actions.

Doesn’t Our Master Data Management Initiative Do That?


Another common assumption is that the master data management (MDM) project in your company can unlock supplier information stored in disparate systems. Not so. Typically, MDM enables data exchange only across specific, limited applications. And even the most flexible and real-time MDM business processes are not oriented toward risk management (for example, they won’t send an automated alert when three out of five risk metrics drop). Instead, MDM-oriented business processes involve MDM-driven events, such as the arrival of a new delivery. MDM initiatives enable a custom business process to flow between applications, but they are not designed to aggregate unrelated data points into one consistent source of supplier information that is shared by multiple applications.


You Need a Dynamic Supplier Information Hub


ERP and MDM systems are constrained, a dynamic supplier information hub isn’t.  Dynmic hubs provide consistent information that all applications can use. And that information’s not just a static view of the supplier information, but rather a dynamic, actionable representation of the supplier that allows responses in real time.

The business case for creating a 360° supplier risk framework is strong.  It can significantly cut costs by providing a single source of clean, integrated supplier data. Plus, it can reduce time-to-market for new products and services by providing an accurate view of leading and lagging supplier risk indicators.

Your suppliers should be one of your company’s greatest assets.  A 360° view helps you understand them better, serve them better and, ultimately, do business better.


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About the Author


Tim Albinson is Founder, CEO, and chief visionary of Aravo Solutions. With a technology background dating back to the early 1980s, he has held cross-functional positions in marketing, product strategy, and sales management.

Mr. Albinson has been an advocate for conservation and sustainability for over two decades, and has worked with organizations including World Wildlife Fund, The Nature Conservancy, American Forests and Fundacion Natura, Ecuador’s leading conservation group.

Mr. Albinson holds an MBA from the Haas School at the University of California at Berkeley. He also holds a BA in English literature from the University of Colorado at Boulder.


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Albinson Says:

Even the most flexible and real-time MDM business processes are not oriented toward risk management.

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