Post-Pandemic Lessons: Supply Chain Risk and Contracts

Introduction

The COVID-19 pandemic has shown where global supply chains are weak and changed how risk and contract management is done. After a year, companies need to think about the most important things they learnt and how they can be used in the “new normal.” These findings bring to light the importance of an open supply chain, strategic risk management, and thorough contract operations. Let’s look at these lessons to make businesses more ready for future problems.

Specifically:

1. Expected supply-chain visibility is lacking.
2. It’s not enough to manage risk. You must stop it.
3. If you can spot them, contract variances might indicate danger.

Let’s analyse each.

1) Supplier visibility is lower than expected.

Pre-pandemic polls revealed procurement officials thought they had enough supply chain visibility. The number of those who said so reduced considerably six months following the outbreak.

Companies were optimistic before the epidemic because supply chain transparency was unclear. In other words, false confidence.

Companies felt it was enough to know their Tier-1 suppliers, but successful supply chain management required insight down several layers to understand how disruptions/failures may affect them.

Suppliers have been afraid buyers may sidestep them if they divulge their sourcing practices. However, Blockchain technology allows all supply chain parties to upload their supplier contracts to a limited consortium that may extract location and compliance data without disclosing sensitive information.

This technology may have seemed futuristic to procurement officials a year ago. Technology exists, and the epidemic has proven the necessity to act quickly on advanced digital solutions like these.

2) Risk management isn’t enough. You must stop it.

The pandemic also challenged the corporate notion that risk was unavoidable and procurement’s responsibility was to manage it (i.e., supplier failures). This strategy only makes sense if global, catastrophic disruptions are impossible. We know they can, therefore corporations must avoid risk, not simply manage it.

Risk should be avoided from the outset of a supplier relationship—selecting and contracting a provider. Understand the supplier’s internal supply chain for lower tiers to determine the ultimate sources of supply—having several suppliers for the same product if they depend on the same source may not be a de-risking approach.

Today’s software lets organisations integrate D&B into their contract management system. This flags problematic vendors before any agreements are inked.

Advanced contract management software can track real-time discussions and score language modification risk. This sophisticated AI tool helps procurement directors prevent danger from entering the system.

Very mature procurement organisations may consolidate all this information into an Integrated Supplier Risk Assessment, which serves as a single source of truth for every relationship’s risk potential, helping sourcing executives construct a more robust supplier base.

3) If you can spot them, contract variances might indicate danger.

Business risk is unavoidable, thus the key is how to detect supply chain issues so organisations can fix them. Last year, we learnt that early supply chain failure detection is essential for swift response, contingency planning, and disaster prevention.

Contract compliance monitoring is a great approach to spot risk early. If a supplier starts breaking their contracts, it may indicate serious issues that need rapid attention.

If contracts are not tied to operational systems like material delivery, contract variations are hard to identify. Connecting contract data to transaction systems is becoming best practice. This allows conditions to be enforced and deviations addressed before they become major issues.

Conclusion

The COVID-19 pandemic has highlighted the need of supply chain management and risk reduction. Companies may prepare for unexpected interruptions by improving supplier visibility, risk management, and contract compliance. These lessons increase operational efficiency, minimise procurement risks, and assist navigate black swan situations. Integrating these insights can help organisations construct more robust and flexible supply chain frameworks to succeed in an increasingly uncertain global marketplace.