Economic volatility, global instability, and the ‘ESG Tsunami’ are here to stay. Here’s how to stay afloat this holiday season and beyond.
By Jag Lamba, Founder and CEO, Certa
Between the Russia-Ukraine War, labor contract negotiations, and emerging ESG disclosure mandates, procurement teams are facing more battles than ever during the busiest months of the year.
But with demand fluctuating as inflation soars and the nation approaches a looming recession, many procurement teams are being blindsided with third-party risks while trying to keep their own operations afloat. Some teams are rushing supplier onboarding, unintentionally overlooking supply chain threats, and sustainability is slipping to the bottom of the priorities list over ensuring continuity.
The ‘stay afloat’ mindset is leading to cascading risks far beyond the holidays. Thankfully, leading businesses can prioritize agility and leverage procurement as their first line of risk defense through the peak season and beyond.
A Guide to Achieving Resiliency Through Disruption
Agility is more than just a buzzword. It’s the ability to quickly cut ties, re-source, onboard, and manage a new supplier in the face of a supply or transportation disruption. It’s the capability to do this at scale, with ease – without adding stress to your team’s plate. Most importantly, when coupled with increased visibility, agility enables procurement to foresee risk and disruption before it occurs – enabling teams to make smarter supply chain decisions in real time before impact.
As business leaders prepare for the holiday season and the new year, there are four strategies that can be leveraged to achieve the level of agility and visibility needed for resilience in today’s marketplace.
1. Transition from Supplier Consolidation to Multi-sourcing
When COVID-19 hit and government shutdowns halted global trade, the world became keenly aware of the risks of being overly reliant on one company or region. Today, procurement teams must prioritize multi-sourcing to ensure adaptability and long-term stability amid inflation and geopolitical conflict.
By partnering with backup and parallel suppliers, companies can build out their supply bases and create contingency plans to more effectively mitigate supply chain disruptions. McKinsey found that 97% of supply chain leaders have already implemented a combination of tactics, including dual sourcing and regionalization, to improve resilience – trends we expect to continue well into 2023 and beyond.
2. Don’t Compromise Vendor Vetting for “Financial Gain”
In the rush to multi-source or onboard new vendors, don’t forget that your suppliers’ vulnerabilities are your vulnerabilities. While partnering with the cheapest vendors may be attractive during an economic downturn, it’s imperative to go beyond cost.
In 2023, geopolitical, economic, and compliance risks will continue to pose a significant threat to supply chain operations. To mitigate severe disruptions, business leaders need to understand the risk landscapes of potential vendors and suppliers. For example, if your supplier’s ownership line is not properly vetted, sanction risks can cascade through the supply chain and jeopardize business operations.
While a thorough onboarding process may seem onerous and time-consuming, it is essential to understand financial and regulatory risks, as well as to run background checks, conduct due diligence, and send out questionnaires to prospective third parties. Quickly obtaining comprehensive risk scores, vendor validations and automated alerts on any red flags is key to making decisions beyond a lowest-cost model. These validation processes can be orchestrated efficiently using procurement technology.
3. Prioritize Ethical and Sustainable Suppliers
Procurement is under a lot of pressure to make quick sourcing decisions when experiencing disruption – and as a result, sustainability may be placed on the backburner. But as the SEC develops new ESG mandates that assess a company’s entire supply chain, now is not the time to skimp on ESG.
Without 24/7 visibility into your suppliers’ ESG practices, your business is at risk. Businesses need to have the right ESG frameworks in place to validate and evaluate third-party operations. Are you collecting Scope 3 emissions from third parties? Where and how are their products sourced? Are their operations safe, sustainable, and ethical? In 2023, knowing the answers to these questions will be imperative to comply with the latest laws and regulations.
4. Take an Active Role in Ongoing Supplier Management
Due diligence doesn’t end after onboarding. There will always be new risks, as well as emerging compliance requirements that may not be on your radar – or your suppliers’. This oversight could result in severe financial implications.
Once you have the right suppliers in place, it is crucial to actively monitor and manage all third-party operations to account for changes in financial stability, cyber security and information privacy threats, new partnerships, reputational incidents, and more. If you don’t regularly re-evaluate your strategic suppliers, they could bring unforeseen damages to your business’s reputation and day-to-day operations.
Fueling Your Strategy with Advanced TPRM
As chaos grows for procurement, some of these initiatives may feel like a pipe dream. Third-party risk management (TPRM) software can help businesses drive a new strategy forward – ultimately saving you time, cost, and risk with no added headache.
TPRM solutions can fuel multi-sourcing by streamlining strategic decisions at scale, enabling constant monitoring of evolving situations and compliance regulations. By helping teams identify, assess, and onboard new global suppliers in less time than ever, vetted suppliers can be up and running to ensure continuity no matter what global disruption strikes. And through easily tracking and measuring key factors like ESG throughout the entire third-party lifecycle, TPRM software can provide a more holistic view of your vendors’ operations and the sudden changes to come. This level of visibility isn’t only important for reporting – it’s critical to making procurement a differentiator.
While supply chain challenges may seem impossible at times, having the right contingency plans and tools in place can ensure business continuity and resiliency. By gaining more insight into third-party operations, business leaders can learn from past mistakes and prepare for future disruptions.
Jag Lamba grew up in Bombay, India, and studied computer science before kicking off his career as a software engineer. After moving to the US and transitioning into Product Management, he began pursuing his MBA from Wharton while working at McKinsey and eventually moving into its strategy consulting practice. Over 10 years later, he decided it was time for a change and pivoted into working for a VC firm in India. Inspired by his experience in the entrepreneurial space, Jag founded Certa in 2016 with help from Techstars and angels. Today, Certa has raised a $15m dollar Series A led by Point72 ventures.
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