Is Supplier Risk Management “nice-to-have”?

We recently built a supplier risk management enterprise solution for implementation as a software as a service (SaaS) business model. The solution was architected based on inputs from various practitioners and domain experts in the industry as well as personal experiences in managing global suppliers in both large and small enterprises. It received many accolades and good reviews. However, we noticed that many companies had tough time justifying the budget for implementation of a supplier risk solution. Frequently, there are other more urgent priorities competing for the same budget. Some organizations tend to view Supplier Scorecard or Supplier Risk Management solutions as “nice-to-have” rather than a critical part of the enterprise operation. I beg to differ. Investment in risk management is somewhat like buying an insurance policy except it is much more critical. An insurance policy is primarily used for reactive or defensive purposes, whereas supplier risk management can be used much more proactively. Consider the recent examples of failures in supplier risk management in widely different industries:

Toyota’s failure in managing the supplier of braking systems (CTS Corp) that led to massive auto recall
Apple’s failure in managing Chinese suppliers (Foxconn) that violated corporate social responsibility obligations
BP’s failure in adequately managing subcontractors (such as Halliburton) for the offshore drilling platform leading to world's worst oil spill

In each case proactive management of supplier risk should have highlighted the danger so that mitigating actions could have been taken before it was too late. No amount of insurance could have provided as much benefit as an appropriate level of investment in supplier risk management. Typically, the investment required for managing supplier risk would have been just a small fraction of the insurance premium. Thus, in an increasingly inter-dependent enterprise that is constantly looking for operational efficiencies by outsourcing non-core functions, investment in supplier risk management cannot be over-emphasized. Is this the hazard of the “flat” world?

Why This Blog?

Welcome to the inaugural post of Aloke Bhandia's blog.

I have been an active reader of and contributor to various blogs over the years. I have thought about starting my own blog for a while. Finally, this is my humble beginning. Ideas pop up as we go through life, both professional and personal. I will make an effort to record my thoughts in these pages. Due to my years of dabbling in various enterprise software, invariably there will be ideas around enterprise software business processes. Lately, I have been intrigued by the prospects of applying Supply Chain and Lean Manufacturing concepts to Human Capital Management, and hope to elaborate more in subsequent posts. Other areas of professional interest include building multi-company data cooperative for benchmarking and decision support, integrated strategic sourcing workflow, applying artificial intelligence techniques to classify large volumes of data (such as search results, transactional data, etc.). We are also building http://www.supplyknowledge.com/ as a portal for supplier management knowledge repository, training, and procurement outsourcing services. There may be frequent musings on the trials and tribulations of launching such a large community website and a transaction portal.

Since we are raising two wonderful boys, occasionally, I may also stumble into parenting topics. Particularly, this summer, while boys are immersed in advanced Middle School and High Mathematics (so that they can skip ahead to the next level of math in the coming school year), I am having a lot of fun interacting with them, even though sometimes it becomes a true test of my patience.

I welcome comments from visitors of this blog.