Cost savings may be job number one today, but the current economic crisis portends an equally disturbing storm brewing on the horizon: heightened supply risk. Volatile commodity prices, credit shortages, 23consolidation and bankruptcies are combining so that companies - regardless of their size or the industries in which they operate - will face some form of supply disruption in the year ahead.

As outsourcing, consolidation and globalization continue, supply risk is an increasingly significant source of overall business risk. So what can you do to minimize the incidences of these risks and potentially negative impact on your business while positioning your company to compete more strongly when economic conditions improve?

1. Include risk management in your sourcing strategy. Revisit your sourcing process, Requests for Proposal, etc. to confirm that risk management is adequately addressed in your evaluation by all of your buyers.
2. Audit the financial, operational, and balance of trade exposure of your most strategic and mission-critical suppliers. Too often investigation of supplier solvency and dependencies are limited to the initial sourcing project. You need only to open a newspaper or turn on the nightly news to realize that the health of even the seemingly most stable companies can degrade quickly.
3. Look for early warning signs. Drops in quality or shipment delays can be indications that the supplier has cut too deep into its operations. More frequent requests for early payment or changes in sales and support personnel should also raise a red flag. While these symptoms may not necessarily belay supplier troubles, they should warrant further investigation.
4. Increase the frequency of supplier performance reviews. In the face of highly volatile markets where credit is tight, reviews should be done at least quarterly with your most strategic and mission-critical suppliers and semi-annually with your next tier of suppliers.
5. Automate your supplier management process. The above actions may be time consuming, but well worth the effort, considering their risk avoidance potential. Leading spend management organizations are simplifying this process by leveraging supplier management tools that combine self-service portals for suppliers to publish and manage their own profile information (and workflow for routing supplier profiles for review and approval); scorecarding and performance measurement utilities; and project management capabilities for corrective action management. Use of such tools can improve visibility, control risk and enable you to extend supplier management to a broader portion of your supply base.

In today’s economy, the only thing that is certain is that companies will face more supply risks and challenges than ever before. But with the right tools, they can effectively manage and overcome them.

For additional insights into developing and executing effective strategies to mitigate supply risk, visit the Supply Risk Resource Center.

Sundar Kamakshisundaram is a Senior Solutions Marketing Manager for Ariba’s Sourcing Solutions. For questions, comments or feedback, Sundar can be reached at sundar[at]ariba.com.