This metric addresses the degree to which enterprise supply risk management processes and supporting programs are implemented across the organization. There is perhaps no activity more important to procurement than ensuring high-quality supply at lowest total cost from reputable suppliers. Yet, as foundational as supply risk management is to the enterprise, it is surprisingly under-resourced and managed in an ad hoc manner.

While there may be pockets of supply risk management activities that are distributed among the various processes and parts of the business, only 13% of peer-group companies utilize supply risk management processes consistently across the business.

Strategic implications: It is fairly clear to most senior executives that supply risk is a multi-headed beast that needs to be tamed. In spring 2008, commodity price risk was top-of-mind, particularly in constrained supply markets such as those based on scarce natural resources. However, a mere six months later, the focus shifted dramatically to supplier solvency risk, in light of the severe recession that has affected all companies in the value chain.

At some point, the risk focus will undoubtedly shift again, possibly to inflation or geopolitical instability. Therefore, supply risk should be incorporated into an overall, consistent enterprise risk management process and governance framework. This is perhaps where world-class procurement organizations differentiate themselves the most. They create a holistic supply risk management process and governance framework to protect all the aspects of supply that are important to procurement and to the enterprise. They also integrate those efforts into the broader enterprise risk process to provide funding, metrics, change management support and the cross-
functional alignment needed to gain consensus among diverse stakeholders.

Making risk/reward tradeoffs is not easy, but ignoring their necessity puts procurement on the hot seat when supply-related problems occur, even when it lacks the visibility and resources to make sure that risks are identified and intelligently mitigated. Effective supply risk management also is a way for procurement to elevate its value proposition and help the business protect its brand, cost leadership, stability and other prized attributes.
Hackett Group