2017 Global SRM Research Report - Solving the value Puzzle

RISKOFFERS VALUE GIANT INDUSTRIAL FINDSGLOBAL VIEWOF SUPPLY

CASE STUDY INDUSTRIAL

The financial crisis began nearly 10 years ago, but businesses still feel its effects. One global industrial firm describes how, since the crash, it has been working to improve its measures of supplier risk – and ensure they provide business value.

The result was a shift in how suppliers and the manufacturer managed risk, he says. “Big suppliers of electronic equipment reduced the guarantees and started keeping spare parts for five years instead of 10, so we had an obsolescence risk. Meanwhile, some big suppliers decided to outsource production to Asia and the Far East where we were concerned about quality issues. At the same time, customers were pushing us to hold stock for longer and only deliver on a just-in-time basis so that they could reduce their working capital.” calculations based on manufacturing asset or country were insufficient. It measured risk at the level of a single factory or product line. Small changes in the behaviour of a single supplier may not seem significant at that level, but if the supplier supports the business in many locations and across product categories, changes in behaviour could have a far-reaching influence on risk. As it considered these risks, the manufacturer began to see that its

The banking crisis of 2007-08 ripped through the financial services sector on both sides of the Atlantic. But a decade on, its effects have been felt across all industries, worldwide. Take, for example, a State of Flux client in the industrial sector. A multi-billion dollar world leader in heavy industry and global top 20 manufacturing firmwith industrial operations in 18 countries, like any business of this size, must measure supply chain risk to understand threats to the business. As a result of the financial crisis it began to change its thinking, says its manager for operational risk management. “Like many businesses, we saw some suppliers that could have gone bankrupt and many big suppliers focus on their working capital,” he says. Before 2015, it based these calculations largely on its operations and assets for the purpose of investor reporting. But over the past couple of years, it has been using innovation in SRM to understand how the behaviour of suppliers can create risk across geographies and business units.

We are set up in vertical silos based on geography or product type. We discovered we don't have a global view of the total exposure to supplier risk, we only have a vertical view. We wanted to try to create a methodology we could use for understanding and managing supplier risk across the whole group."

CASE STUDY STATE OF FLUX 2017 GLOBAL SRMRESEARCHREPORT