Supplier Risk Seen Increasing, But Organizations Lack Performance Management Tools

Aberdeen research shows nearly half of organizations lack integrated supplier performance and risk management programs; need seen for apps to track supplier metrics


San Jose, CA — July 2, 2007 — Two-thirds of companies expect supplier risks to increase in the next three years, and 60 percent of executives believe that supplier measurement and management programs can help mitigate top risk indicators such as financial viability, supply disruptions and supplier dependency, according to the results of a recent report from technology consultancy Aberdeen Group.

In its report, "Supply Risk Increasing while the Market Stands Still," Aberdeen discussed the results of a survey of executives regarding supplier performance and risk. These executives cited low-cost country sourcing (LCCS) as the main factor contributing to the increased risk.

According to Aberdeen, geographic distances and varying business cultures pose performance and relationship management challenges from the outset. The analyst group explains that typical business activities such as service level compliance reporting are delayed due to time-zone differences or supplier technical capability.

Vance Checketts, vice president of global supply management for Aberdeen Group, said that, in the survey, chief procurement officers of leading enterprises identified supply-related issues as one of the top three areas of focus in 2007. However, nearly half (49 percent) of organizations do not have supplier performance measurement and risk management programs in place, Checketts said.

"The programs currently in place are relatively new and measure less than 50 percent of the supply base with spreadsheets or homegrown tools," Checketts said. "As the threat of supply risk increases, it is imperative for companies with low-cost country sourcing programs to implement dedicated applications that track quality, on-time delivery, price and performance."

Aberdeen recommends that companies perform as much due diligence as possible in the selection of supply partners and establish a continuous process for monitoring and improvement activity to ensure that supply disruptions are minimal.

The report currently is available for free (registration required) at the Web site of Centric Software (www.centricsoftware.com), which specializes in product intelligence solutions and which sponsored the research.

"Global procurement through low-cost country sourcing is a viable revenue growth and margin improvement strategy, but it inherently exposes organizations to more risks," said Chris Groves, president and CEO of Centric Software. "Applications for low-cost country sourcing must be specially designed to manage vast amounts of product and supplier data. In addition, an easy-to-use application that fits naturally into existing corporate processes is essential for world-wide user adoption, optimizing profits from sourcing and mitigating supplier risk."

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