Three Risks Every Procurement Organisation Needs To Manage

Experts around the globe tracked the terrifying advance of Hurricanes Harvey and Irma earlier this month, plotting and estimating the potential damage to life and property as the monster storms approached the U.S. mainland. Can the deployment of cognitive AI lead to more accurate predictions and better risk management?

IBM’s global supply chain has been acknowledged as one of the world’s most complex. With scale and complexity come increased risk, but the Global Procurement team has it covered with its award-winning risk program augmented by the remarkable abilities of the Watson Cognitive Platform.

Even Watson, however, appreciates some assistance when it comes to risk mitigation, which is why IBM has partnered with an e2e cloud risk service provider named Resilinc. With this new capability, the team provides a composite risk score for every one of IBM’s suppliers based on six risk dimensions – financial, location, recovery, operations, resiliency and sourcing.

The three overall risks that the team has built its mitigation strategy around are:

1. Loss of supply continuity

The fallout from a supply continuity problem are well-known – missed deliveries, plummeting customer satisfaction and lost revenue. IBM’s risk program is therefore designed to protect supply continuity by monitoring and providing real-time alerts on man-made risks, natural forces or climatic threats, along with financial and economic risks.

Nothing illustrates the disruptive potential of a risk event so much as the recent Hurricanes Harvey and Irma. To demonstrate how Watson can augment risk-management ahead of hurricanes and other crises, the team at IBM shared with Procurious the ways in which Watson’s cognitive capabilities were used to track and provide unique insight into Hurricane Patricia back in 2015 – an approach which contributed to IBM picking up a major award for Risk Management at Procurement Leader’s World Procurement Awards.

Using feeds including The Weather Company and the US Navy Weather database, Watson tracked the storm’s velocity, size, category, intensity and simulated scenarios of possible storm tracks. Interestingly, Watson also engaged in “social listening”, picking up local sentiment by tracking Twitter and other social media platforms. At the same time, Watson alerted IBM about every 1^st and 2^nd-tier supplier in the storms’ possible tracks.

Once the Risk and Supply Assurance teams had the earliest possible indication of Patricia’s potential impact, mitigation plans (such as closing at-risk plants) were readied for deployment. 

2. Reputational damage

 IBM’s Conflict Minerals Team must be very well-travelled. From Dubai to China, Indonesia to Vietnam, they’ve conducted on-site visits with smelters and refiners to an impressive 10 levels deep in the supply chain, working with them to certify that they are using minerals controlled by responsible sources.

Every supplier must sign the Electronics Industry Citizenship Coalition (EICC) code of conduct, which IBM has adapted as the single code across its supply base. It establishes standards regarding safe working conditions, fair and dignified treatment of workers, and environmentally responsible and ethical operations. To this end, IBM has conducted +2000 3^rd-party audits across 34 countries. 

3. Regulatory noncompliance 

Although noncompliance isn’t as exciting as a hurricane tearing through suppliers’ facilities, the impacts can still be dramatic. Noncompliance can result in fines and penalties, product impoundment, revenue reversal and adverse press.

IBM’s Global Procurement Environmental Compliance team ensures all products comply with environmental directives, laws, regulations and standards; made incredibly complex by the global nature of the organisation. The team tracks changes in regulations, such as eco-design or restrictions of certain chemicals, then determines if the change will affect IBM products and plots a path to compliance accordingly.

Risk and Reward

IBM Global Procurement’s efforts in risk mitigation were recently celebrated at Procurement Leader’s World Procurement Awards, where the team won a major award for Risk Mitigation, and a second award for its transformation program.

Procurious is working with our Knowledge Partner, IBM, over the next 12 months to promote cognitive procurement to our global community. To learn more about IBM Global Procurement, click here.