Supplier risks in the spotlight during the COVID-19 pandemic Supplier risks in the spotlight during the COVID-19 pandemic Supplier risks in the spotlight during the COVID-19 pandemic

The rapid spread of the coronavirus presents significant concerns. In addition to the human impact, there is also a considerable commercial impact being felt globally. The effects on supply chains will be long lasting but with the appropriate response organizations can stay resilient. 

The coronavirus threat will eventually fade, but we know that other devastating disruptions will follow in the future, be it pandemics or natural disasters. Considering this, the current challenge can be used as a platform to gain deeper understanding of strategic operations and supply chains, and in turn, to develop more collaborative and resilient relationships with critical suppliers.

At KPMG we have an international network of procurement, risk, and supply chain experts, located in more than 100 countries. Together we are working hard to help companies manage the current situation and build resilience for the future. Different industries and sectors obviously have their own specific prerequisites in regards of procurement and supply chain management, but through our work we are noticing common denominators as well as important strategies and steps companies should act on.

The summary below provides some good examples on how organizations have managed supplier risks in the light of COVID-19. It also gives you inspiration on how to position your procurement and supplier management to be resilient in the face of future threats.

Successful organizations with extensive presence in, or direct ties to, affected areas have taken immediate action to assess supplier risks, positioning them to appropriately support key stakeholders, employees and customers. Examples of how:  

• Response teams have been created to facilitate the open and consistent flow of accurate information between key stakeholders, maintaining stakeholder confidence and informing customers who will be impacted.
• Criticality of sourced materials to high-value products and revenue streams has been mapped. Components and raw materials that have the highest impact on revenue streams have been identified, ensuring scarce capacity is allocated wisely.
• Contracts with key customers and suppliers have been reviewed to understand liability in the event of supply shortage.
• Business exposure has been reviewed by identifying current and buffer inventory, building tier-transparency and short-term action plans.

What this tells us is that durable corporate relationships and the degree of agility instilled within operating models can help organizations to strengthen overall preparedness in the face of any disruption.

So, what about the future? Beyond immediate actions, organizations should value the opportunity COVID-19 provides to reflect on the ability to navigate crises and consider actions to increase agility and become more resilient in the future. Below are a few areas to consider:

• Scenario planning: Scenarios enable organizations to see the bigger picture and make effective decisions. By analyzing past events and hypothesizing future threats, organizations can identify strategic and concentrated supplies that are at risk, and most importantly, recognize when current internal risk capacities prove insufficient.
• Micro supply chains: Supply chains’ historic focus on reducing costs has led to large, integrated, global networks that gain economies of scale through outsourcing manufacturing to emerging economies, backed by long term contracts. However, impacts such as the current situation are forcing organizations to question this model. Alternatively, many organizations would benefit from shifting towards micro supply chains, leveraging their highly decentralized nature and ability to alter production and delivery, scale volumes and introduce new products at short notice.
• Collaborative supplier relationships: With time and investment, the current situation can be used as a platform to build a foundation of trust and transparency that leads to more collaborative relationships with your critical suppliers.
• Supplier risk management: Identify, implement or improve solutions for real-time supplier data such as system performance category alerts and geopolitical events.  When alerted, proactive measures should be taken by organizations to uncover additional exposure levels by reaching out to suppliers outside of affected regions to identify upstream supply dependencies within their supply chains.

Clearly, close monitoring of any company’s supplier risks is more critical than ever before to secure the business continuity. In order to do this successfully, we strongly encourage our clients to take advantage of today’s digital solutions as well as the access to supplier and supply chain data. In our work it has been very clear which information points are the most critical, and we are using various methods and smart platforms to help clients monitor them.

With senior experts all over the world, we have a thorough understanding of the challenges facing today’s companies. We support our clients in many ways with their supplier risk management – both in improving existing solutions and with building new capacity. KPMG provides a digital supplier risk solution – a cognitive computing platform that accesses thousands of sources including the open web, multiple languages, corporate registration records and data aggregators to automatically and comprehensively assess risk related to your key suppliers.

Scenario simulations related to the specific risks can be performed, enabling organizations to react accordingly to secure the supply chain. The solution is adapted to specific client needs and circumstances, such as COVID-19 or any future threats.

The KPMG Supplier Risk solution is:

Visual – It allows the user to analyze and display KPIs, metrics and key data points related to the supplier’s risk and spend profile. The dashboard is customizable to meet the specific needs of a category team or department.

Updated – Data is continuously being fed into the solution from a vast number of sources to ensure that the dashboard contains the latest information.

Comprehensive – No constraints on the amount of data or number of sources that can be analyzed. Over 30 languages are supported.

Flexible – New focal points can be quickly implemented and searched as part of each supplier profile.

Scalable – Large volumes of requests can be processed swiftly with no additional effort.

Smart – Artificial intelligence technology replicates the way human analysts conduct research faster and more consistently.

Sample Dashboard:

Head of Procurement Advisory

Pontus Sandslätt, pontus.sandslatt@kpmg.se