The Intelligent Way to Manage Supply Chain Risk – Insight from Rolf Zimmer of riskmethods

PETER SMITH

 - July 10, 2018 12:07 AM |

Categories: Procurement good practice | Tags: L1, Risk, riskmethods, supply chain management

We’ve worked with riskmethods for a while but I don’t think I have seen Rolf Zimmer (co-founder) speaking in public. He did so at the recent Jaggaer Rev event in Munich, the link being that riskmethods (RM) is based in the city, and there is a partnership which sees multiple Jaggaer Direct customers using the RM product though links embedded in the Jaggaer platform.

Zimmer talked about how “digitised supply chain risk management (SCRM) will change the competitive landscape”. Firms face a perfect storm, he says:

• JIT and JIS (just-in-sequence) approaches are faced with demand volatility
• Firms have embraced lean production, hold lower inventory buffers – 30% of the annual material value can be incurred in holding costs. So organisations have reduced stock levels over the years
• Regulatory requirements e.g. ISO 9001:2015 demand proper risk management
• Dependence on multi-tier networks – something happens in the 2nd or 3rd tier, it impacts the buyer. 50% of supply chain disruptions happen beyond 1st
• Increased social awareness of issues, from bribery to environmental issues

So enterprises sit in the eye of the storm and can suffer e.g. a port worker strike in US cost McDonalds Japan 10% of revenue, as American potatoes went rotten in their containers. Another example; the ethylene price went up 18% after an explosion; and Peugeot delayed a new product launch by 2 months because of supplier plant fire.

RM empowers companies of any size to master supply risk and create reliable supply networks, and as Zimmer says, it should not be just the large firms who can do this. It is a complex topic though, so he and co-founder Heiko Schwarz looked from the beginning at how to simplify SCRM, make it digestible, easy to use, visual and relevant.

There are three key elements to the product. The risk radar identifies threats, and provides real time monitoring. The impact analyser assesses the impact of events, and the action planner allows users to understand what to do, and how to mitigate risk.

He was interesting on the difference between supplier and supply chain risk. Supply chain includes  logistics issues and “hot spots”, and considers countries for instance as “risk objects”.  The platform can model “supply paths” – one event at a port might impact a dozen or more different spend categories. Or in terms of the network effect, if another supplier has a problem, your customer might say “no deliveries for 2 weeks because we can’t get materials from the supplier”. (That leads on to an interesting point about procurement / sales links which we may come back to another day.)

There is an ocean of data out there of course, so there is also a need for “noise cancellation” – a focus on “what matters to my company”. The platform provides that and ensures relevance, but automates the work. And risk can be identified by early warning signals – in the case of financial risk, that might be late payroll, family plans to sell, factory shutdown. But there is also “latent risk” as well as real-time e.g. an earthquake risk that exists based on supplier profile and location. You can optimise relevancy for your firm in any case and avoid the “noise”.

Zimmer then talked about how risk management can be embedded throughout the supplier engagement process – that probably deserves an article in its own right as well. So jumping to his final takeaways:

• SCRM is a key differentiator
• Go beyond supplier risk to supply chain and network risk
• Embed risk management into the source to pay process
• SCRM can be an innovative, important and successful example of procurement digitisation

Finally, RM is holding the Supply Chain Risk Summit in Frankfurt on October 10th – if you are interested in the topic, and who isn’t, then it may well be worth a trip to Germany for that.