Risk management was the topic du jour yesterday at the Supply Management 2.0 Forum in New York. The risk issued figured heavily in all panelists’ presentations at the Forum. But research from A.T. Kearney and an informal poll of the supply management executives in the audience indicate that most companies lack sufficient risk assessment and contingency planning capabilities.

According to A.T. Kearney’s ongoing Asessment of Excellence in Procurement (AEP) study, while 90% of companies recognize business continuity risk as a strategic issue, only 38% of companies have procurement strategies in place to ensure such continuity. This dichotomy between acknowledging the importance of supply risk management and having formal procedures for assessing and mitigating risk was reaffirmed with an informal poll of the supply management executives at the Forum.

Jane Wanklyn, Director of Knowledge Management at A.T. Kearney Procurement Solutions advised attendees to work quickly to develop skills and systems to better manage risk: “Trends like outsourcing, just-in-time supplier strategies, and globalization are increasing risks inherent in global supply chains. Contingency planning needs to be a core part of supply management.” A.T. Kearney predicts that “solutions Balanced global supply and risk management will be core responsibilities for supply managers by 2010.”

Other Forum speakers reported that their companies have already made assessing and managing supply risks a core competency:

“Risk management is our business,” said Jean-Jacques Beaussart, CPO for National City Corporation, a Top 10 U.S. financial institution. “It’s our job to make sure we know how to manage risks.”

Indeed, every member of National City’s supply management team is trained in both Six Sigma and change management. Beaussart’s supplier managers must complete formalized risk assessments on their suppliers every six months.  (Outsourcers and other third-party providers managing spend on behalf of the bank must also complete these assessments.) Each assessment results in a scorecard of each supplier’s performance and risk score. These scorecards are used to detect potential supply risks and prioritize corrective actions and contingency plans.

National City’s supplier managers are measured both on the number of risk surveys completed and the number of scorecards completed. Beaussart also emphasized that such supplier and risk management techniques would be difficult if not impossible without the use of supply management software.

“Everything has to be done digitally and using the Six Sigma process,” said Beaussart, noting that his team uses a single, integrated platform for strategic sourcing, contract and compliance management, and supplier performance management. “As the CPO, I have an online dashboard view into all sourcing, contract, and supplier management projects and information so I know what’s going on in my organization every day.”

Other enterprises would be wise to emulate National City’s approach, metrics, and systems model for assessing and managing supply risks. Why? The cost of not doing so are just too high.

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