|GOV21 Speakers Stress Supply Chain Governance Needs to Change|
GOV21 Speakers Stress Supply Chain Governance Needs to Change
What do you do when there’s no plan B in a crisis like COVID-19? You quickly change how you govern your supply chain because there’s no other option.
With that note, expert speakers kicked off GOV21 – a two-day online forum Oct. 27-28 devoted to improving governance to cultivate and strengthen productivity presented by IAOP’s Collaborative Supplier Governance Center of Excellence and key sponsor, Avasant.
With ever-changing outsourcing engagements, multi-supplier ecosystems, demand for sourcing in indirect spend categories, new delivery models and global shoring trends, it is critical for supplier chain governance to also adapt, stressed the business leaders from the CoE speaking in the panel discussion.
Forming true collaborative partnerships, customers and providers need to transform their supplier governance practices and embrace the trend to continuous, proactive governance and broad-spectrum risk intelligence to maximize value, drive innovation, and manage the multi-vector and cascading compliance risks of their outsourcing relationships.
“If you are doing governance the same way as you did five years ago, you’re probably experiencing a few problems,” said Jim Lee, Vice President and Global Leader, Governance, Risk &Compliance Practice, Avasant, who moderated the session. “The sourcing lifecycle is changing due to a variety of different demands.”
The panel tackled a variety of different demands impacting the sourcing lifecycle – from accelerated IT and business transformation demands around better analytics and data-driven decision making to the emphasis on business outcomes and innovation and value optimization increased risk security and regulatory requirements, and evolving buyer behaviors that add pressure to the sourcing practice.
“What was once considered three distinct lifecycles – the sourcing lifecycle, the contracting lifecycle and the vendor management lifecycle – becoming more and more intertwined,” Lee said. “Organizations are finding themselves without the resources and capacities to address all of the needs of today.”
Taking the Pulse on Governance
According to audience polling during GOV21:
- More than 90 percent of organizations have been directly or minimally impacted by supply chain interruptions in the past year
- Only 15 percent of participants felt their supplier risk management practices have been very effective in staving off supply chain challenges in the past year. Most believe they were only partially effective
- Slightly more than half believe their current supplier governance practices are effectively meeting the needs of business stakeholders with 38 percent responding they were somewhat effective
- When asked how they believe the supplier governance organization is viewed by stakeholders, 56 percent said it was seen as a “strategic business partner” while 44 percent said it was thought of as a “control function”
Factors Impacting Governance
Bill Metz, COP, Chair of IAOP’s Collaborative Supplier Governance CoE, who brings expertise from roles at Procter & Gamble and Walmart, noted that the whole traditional approach to demand forecasting based on models that have historically worked all got thrown out the window with the pandemic and companies are now investing more in forecast models.
“The collaboration that needs to go between a customer and a supplier both on the demand signal and the supply availability and matching those two things up to make sure you have what you need has gotten so much more important,” he said.
Another concept that has been impacted is just in time manufacturing when the supply chain was bottlenecked with supply delivery issues at ports and labor challenges, said Lawrence Kane, COP-GOV, Senior Leader, Strategic Sourcing Functional Excellence, Boeing.
“We need to rethink how we do things and see what’s different and, in many instances, it’s collaborative with the supply base,” according to Kane.
Also contributing to the pressure to change course is the “work from anywhere” model that demands a greater understanding of how work is done by suppliers outside the secure realms of a controlled office environment and how it impacts data security and information privacy, added John Bree, Chief Evangelist & Chief Risk Officer, Supply Wisdom.
“We are basically in the vast unknown now or the Wild West,” he said. “We are seeing a different view of what people need to make decisions.”
And in today’s regulatory environment, it is no longer good enough to understand your third-party supplier. Companies need to intimately know all of their supplier’s contractors down the supply chain and the jurisdictional risks of where they are providing the service from -- and then build governance around all the links in the chain, Bree said.
With the new focus and changing regulations on Environmental, Safety and Governance (ESG), it’s now critical to understand the originals of all materials – even down to the raw material components in the packaging itself – that go into products to protect your company from reputational and other risks.
Even factors like vaccine mandates can impact the supply chain. One example the panel discussed is projected labor shortages in the trucking industry due to workers choosing not to comply and leaving their jobs.
Not having good governance, can hurt a company’s reputation, impact to goodwill, geopolitical risks, and impede progress toward meeting social responsibility goals.
Organizations need to change their mindsets about the crucial role governance plays by using data to quantify its value and also the cost if there is a breach so it is viewed as a value-added strategic asset.
“People are starting to realize procurement people don’t just buy stuff,” Kane said. “If there’s a good side to all the disruption is that folks realize now that what we do is much more important. And having a holistic strategic sourcing risk management approach will be a competitive advantage to the business. The business case is easier to make.”
The pandemic has proven to be an important learning experience for organizations about governance.
“Governance can’t exist as it always has,” Metz said. “So much has changed. This is an opportunity to look at your practices, identify cracks, invest in them and show your organization how much value governance can bring and come out of this even stronger after COVID-19.”
Other topics explored during GOV21 included how the pandemic and virtual work have transformed governance, agile governance, best practices in collaborative supplier governance, and using data to strengthen outsourcing relationships.