Todd Pruzan, HBR
Welcome to the HBR Video Quick Take. I’m Todd Pruzan, senior editor for research and special projects at Harvard Business Review. We’re here today with Etosha Thurman, who is the chief marketing and solutions officer at SAP Intelligent Spend and Business Network. She’s here with us to talk about risk management and resilience for supply chain and procurement. Etosha, thank you so much for being with us today.
Etosha Thurman, SAP
Thank you for having me, Todd. I’m excited to be here.
Todd Pruzan, HBR
Etosha, how can businesses better anticipate risk? And how can they measure resilience?
Etosha Thurman, SAP
After what we experienced as a global economy in the past three years, risk, not just procurement, is top of mind for many C-suite executives, including our CFOs and COOs. We’re all trying to figure out how we mitigate risk. How do we predict possible risk and do our best to mitigate it?
In the world of procurement, when we think about risk, there are a few components that we think about. The first is how do we understand the risk in the supply chain? Am I at risk for a supply outage, which many of us experienced over the past few years? Then there’s supplier risk, whether that’s quality of the supplier or the potential reputational risk in using the supplier.
And then, of course, there’s cost risk. So when you ask the question, how can businesses better anticipate risk, the first answer I have is to monitor it. Thinking about supply chain risk and in particular, supply risk, it’s being able to have visibility and transparency, collaboration with your suppliers on your needs and their capacity and where you sit in that capacity.
And there are solutions out there that can help facilitate that type of transparency and collaboration, including those that we have at SAP. And then when you think about suppliers, supplier risk, I mean, this is probably one of the number one ways businesses can manage risk when it comes to the supply chain, by measuring, tracking, and working with suppliers to understand their risks.
So whether that is tracking supplier performance and having a baseline to work with, does this supplier send us quality product or provide quality services? Does it comply with the time guidelines that we expect? So having a supplier performance management process and solution is very important. And then, of course, also having risk monitoring, where you can ask questions.
Conduct risk assessments of your suppliers. And on top of that, have technology that’s monitoring data outside of what the supplier has provided to give you insight into overall risk. As an example, the SAP Ariba Risk Management Solution has monitoring that will listen to media, listen to external data sources, and inform you if there is a possibility for increased risk with a supplier.
Let’s say the supplier is in the path of a tsunami that’s on its way. The solution would alert you to risk factors that are happening with that supplier. So there are many things that companies can do to proactively discover, or monitor, risk. And then, of course, once you are aware, then you can take proactive measures to address the risk that’s been identified.
It’s a problem across companies of all sizes. But I’m happy to say there are solutions that can help.
Todd Pruzan, HBR
That’s good to know. And yes, sounds like a lot of different factors. Etosha, how can procurement and supply chain leaders guide the wider business in risk mitigation?
Etosha Thurman, SAP
One of the first things that comes to mind is by inserting risk awareness into the procurement process. So as an example, let’s say that you have an end user who wants a new service. I need a new company to deliver whatever service so that I can fulfill our end customer’s needs.
One of the first ways that you can address risk from a procurement standpoint is by sourcing and having information risk awareness in the sourcing process. So as you pull together your sourcing event looking for the companies that can provide the service that’s requested, you do a risk assessment right there as part of the sourcing event to understand which is the least risky of the choices out there and make that a decision criterion.
And then once you’ve selected suppliers and you have them within your supplier community and the actual end users in your business are looking to do business with those suppliers, it’s presenting the same risk information to them. Not all suppliers are created equal. And price is not always the only key decision criterion.
So leveraging technology where an end user is going and they want to buy, let’s say, a laptop. And you have three preferred suppliers that you contract with. And right there in that buying decision you can share with them the risk assessment—the risk analysis or score of each of the suppliers to help mitigate risk. If I need this laptop in one week and I can see on the risk score that this supplier’s maybe a yellow for us because of delivery or quality issues, maybe I don’t select that supplier.
And then, of course, the other way is to be sure that the values and risk policies that the company has are communicated and shared as part of the supplier management approach within the company. So when we’re bringing suppliers on, we’re doing a risk assessment with them, asking them questions related to our values and policies, having them answer those.
And so it creates a dialogue around how we want to behave and set expectations, which also then mitigates risk within the company. So those are just a few ways. Of course, I’m not here to talk about enterprise-wide risk. But companies also have those efforts in legal and finance, but in particular in procurement.
Supplier management, supplier performance tracking, and bringing risk awareness into the sourcing and buying processes are all ways that procurement can help reduce or mitigate risk within the company.
Todd Pruzan, HBR
OK. So, Etosha, given all those considerations within procurement, what are the top organizational risk priorities that procurement teams are focusing on right now?
Etosha Thurman, SAP
That’s a great question, Todd. If I think about some of the top risk priorities, the first one that comes to mind is being sure that I have visibility into where I’m spending. First of all, where does our money go? What companies are we spending with?
The second is having an assessment and understanding of the risk score of those suppliers. According to my values, my company’s policies, how risky is doing business with this supplier? So if I think about the top risk priorities, it’s visibility. It’s understanding the risk profile of the suppliers once I know what companies I’m spending with.
One that’s interesting and continuing to grow in the minds of businesses, and procurement in particular, is cybersecurity. Is there a risk from cyber attacks in our supply chain? We’ve heard of some high-profile cases over the past couple of years where there were cyber attacks that impacted the supply chain. So that’s one that’s growing.
And then I think one that’s ever present, that I was talking about earlier, that actually surrounds risk assessment, is really supplier management. It’s knowing the suppliers, sharing expectations, and having processes and technology that allow for supplier management to be transparent and collaborative.
So those are some of the risk areas. And I think there’s one more that I would add. And that is predictive risk analysis for the unknown, which is really hard. And it’s driving back the process of leveraging things like category management to be able to set a baseline for the industry for key categories and key materials, and then being able to analyze risk across many factors, whether that’s financial risk, capacity risk, supplier concentration risk, geopolitical risk—they all come into play and are on the minds of our customers and the market at large today.
Todd Pruzan, HBR
That’s an amazing range of things everybody has to think about. Etosha, thank you so much for a great conversation today and for all your insights.
Etosha Thurman, SAP
Thank you for having me, Todd. I’ve enjoyed having this moment with you.
Etosha Thurman is chief marketing and solutions officer for SAP’s Intelligent Spend and Business Network.
