Key Takeaways

• The time to evolve from traditional risk management methods is now, particularly with the economic and regulatory uncertainty of today.
• Resilience is an overused term and misunderstood, especially in the context of the supply chain.
• Rather than simply identifying and mitigating risks, action is required immediately to break the cycle of crisis management.  
• Performance requires a comprehensive evaluation of risk factors, capabilities, and metrics.

Introduction

The latest overreaction in many executive suites and procurement team meetings relates to how organizations should respond to and mitigate potential upcoming supply chain disruptions. The newest threats, both real and perceived, relate to shifting tariffs and the confusing state of regulations, particularly in the United States where unpredictability seems to be the current constant. This uncertainty regarding policy changes creates an atmosphere of instability, with organizations scrambling to respond as changes occur.  Most organizations face difficult decisions in balancing short-term mitigation versus making lasting long-term changes.

However, companies do not need to stay stuck in a perpetual crisis management cycle, addressing disruption after disruption. Instead, as we’ll explore in this blog, supply chain resiliency can be achieved by moving beyond monitoring and mitigating individual risks to a holistic approach of analyzing insights and taking action to reduce and remove organizational risks.  

To Be Passive or Proactive: That is the Question  

"To be or not to be: that is the question."

This famous speech from Shakespeare’s Hamlet offers lessons for modern-day procurement professionals. Should a Chief Procurement Officer (CPO) simply endure the "slings and arrows of outrageous fortune," or should they "take arms against a sea of troubles and by opposing end them?" This analogy may seem unconventional, but it highlights a crucial choice for today’s supply chain leaders: remain reactive and passive or take a proactive, strategic approach to mitigate risk and drive consistent performance.

In a volatile global business environment, relying on outdated methods and reactive strategies, even if proven, is a recipe for stress, inefficiency, and endless cycles of crisis management. Instead, organizations must embrace active, forward-thinking approaches that equip them with the tools, strategies, and actions to not just survive but thrive.

Risk and Disruption is Nothing New

For experienced procurement and supply chain leaders, the concept of risk and disruption is not new. Contrary to common belief, it was not the COVID-19 pandemic in 2020 that exposed organizations to performance challenges. History provides numerous examples of significant risks and disruptions — and demonstrates the best way to achieve higher performance despite the obstacles at hand.

Study the Roman legions and see how coordinated, strategic, and purposely designed supply chains ensured consistent availability of food, supplies, and resources to sustain their operations and drive success. These ancient leaders studied weather, geography, geo-political risk, and other factors, identifying vulnerabilities and acting to design them out of the equation. This was thousands of years before computers, SaaS solutions, and artificial intelligence.  

If Roman leaders could successfully manage supply chain risk over 2,000 years ago, why do modern organizations struggle? Perhaps, it is because we have become over-reliant on traditional methods, processes, and tools that produce a siloed, fragmented approach to risk management.  Specific to tools, many organizations fall victim to the “technology will save us” trap.  

To break the cycle, it is time to evolve and embark on an entirely different path that leads to a holistic, proactive approach to supply chain resilience. A modern risk management approach should focus on actively identifying risks and vulnerabilities within the organization’s control and then designing them out of the equation — just as an engineer seeks to design performance flaws out of products.  

This approach focuses on a balance of people, process, and technology leveraging information to drive performance. For procurement, performance hinges on identifying, qualifying, verifying, and selecting the most capable suppliers.  

Back to the Basics: Defining Key Terms  

At any given time, multiple terms and concepts related to supply chain risk and risk management are used interchangeably; yet there are important distinctions. Defining these terms offers us an opportunity to reset the foundation of our understanding from which organizations may chart of new path and drive better outcomes.

Risk: The possibility of an event occurring that could negatively impact an organization’s ability to achieve its objectives.  

Supplier/Vendor Risk: Risk associated with specific suppliers, either independent of or in conjunction of other factors such as category segmentation (e.g., value vs. acquisition). Typical factors affecting the individual supplier include but are not limited to business, financial, operational, cyber, ESG, geographic, sole source, compliance, and safety. Systems that are supplier risk focused center on the individual supplier themselves.  

Third-Party Risk: Risk related to all service providers, associated with outsourcing tasks to third parties which can include suppliers, service providers, business partners, and more.

Risk Management: Process for identifying, analyzing, managing, and mitigating what could go wrong with a given process or entity. The primary focus is on risk tolerance, risk profiles, management and containment, through tools like policies, terms, processes, and insurance.  

Enterprise Risk Management (ERM): A strategic, organization-wide approach that aims to identify, assess, and prepare for potential losses, dangers, hazards, and threats that may interfere with an organization’s operations and objectives, or lead to losses. Suppliers, third parties, and supply chain risk are subcomponents of ERM.

Resilience: The ability to successfully adapt to adversity through changes in behavior and actions. Resilience requires focusing on solutions, addressing what is in your control, and taking decisive action. Organizations that fail to adapt risk extinction.  

If an organization fails to clearly define these risk management concepts and align them with its objectives, it risks misallocating resources, employing immature processes, and selecting misaligned technology solutions. This can create a false sense of security while leaving the organization vulnerable to continued crisis management. A well-defined and structured risk management strategy is essential for building a resilient and high-performing supply chain.

Beyond Data Collection: Resiliency by Design

Data without insight fails to identify the risks and disruptions that expose an organization’s strengths, weaknesses, opportunities, and threats. Insight without action relegates the organization to monitoring, mitigating, and managing risk on a short- or mid-term basis with a series of reactive strategies.  

A truly effective strategy leverages data-driven information to drive proactive decision making. This means not just monitoring risks but actively removing the vulnerabilities and conditions that negatively impact performance, then replacing those weak points with more capable people, processes, technologies, and business partners (suppliers).

How to Take Action & Design Resiliency into Your Organization

1. Align Risk Management with Organizational Goals: Ensure the organization understands the types and scopes of risk management, particularly in relation to organizational goals and business objectives. Make sure the necessary processes and people are aligned.
2. Move Beyond Passive Data Collection: Organizations often monitor risks as singular events that occur. Evolving our risk management approach requires a more mature analysis of data, looking for correlations, connections, and other key insights. With today’s modern software and AI solutions, this process can be automated.
3. Connect the Dots: As those correlations and insights surface, it’s important to connect the dots to understand the broader impact on the organization. Data points — such as safety, cost, quality, on-time delivery (OTD), compliance, and various risk factors — should not be viewed in isolation. Instead, organizations must assess interdependencies. For example, poor safety practices may correlate with production delays, increased costs, and reduced quality, impacting overall supplier performance. Now, cross-reference poor safety practices and the potential correlations listed above, with risk factors such as labor, regulations, and more.  
4. Design Resilience into Your Operations: Assessing these correlations helps an organization build a much more robust view of risk and potential disruptions, like puzzle pieces coming together to reveal the big picture. The pictures they build provide the information required to design performance in, just as engineers use information, analysis, and testing in the design of high-quality, high-performance products and services.

As the organization uncovers information, they can establish new strategies, seek new supplier partners, fix root causes, and design resilience into their supply chain to improve performance. Organizations should take a structured approach to iteratively assess risk factors, implement corrective actions, refine strategies, and evaluate how proposed changes align to corporate goals.

The Shift to Proactive Procurement

Organizations that embrace a proactive, resilience-driven approach to risk management will outperform those that remain reactive. When the right people are using robust processes enabled with the right technology, they can drive to action that shifts from short-term firefighting to long-term, sustainable change, ultimately driving performance and competitive advantage. The basic premise centers on planned and well-executed action. When organizations orchestrate organized design changes conducted by skilled people, following process, leveraging information gained from analysis and benchmarking enabled with the right technology, they drive revenue, margin, and competitive advantage.  Why?  Because they removed the unexpected, took control, and acted to design sustained performance.  

We invite you to follow this series as we explore in greater detail how people, process, and technology, like Avetta’s powerful software, work in concert to drive insight, information, and action on the path to true resiliency. We will delve into how leveraging verified information on suppliers (including around safety and ESG) drives improved decisions and strategies which remove risk and design performance into the supply chain.  

Avetta is a SaaS software company providing supply chain risk management solutions. Avetta’s platform is trusted by over 130,000 suppliers in over 120 countries. Visit Avetta.com to learn more about out supplier prequalification solutions.