SUPPLY CHALLENGE
Risks need to be managed
IT IS well known New Zealand faces challenges of scale and distance, but the impact that has on our ability to purchase goods and services internationally is less well recognised.
A white paper released before Christmas sheds some light on this little-recognised challenge – and advises we need to use sales skills to convince the rest of the world that we are worth bothering about and selling to.
‘‘Simply dealing with requirements at the tip of the global supply chain presents challenges but persuading international suppliers to ‘bother’ to supply a first-world market – that often requires only lowvolumes – is a rare challenge,’’ the authors of Procurement Risks in New Zealand found.
‘‘This suggests buyers need sales skills to literally ‘sell’ the supplier on the idea, and worth, of supplying New Zealand, and to build valued relationships to sustain supply.’’
Sustaining supply and managing supply risk are the major issues identified in the research, a joint project by Grant Thornton and the Chartered Institute of Purchasing and Supply.
Two thirds of businesses surveyed were hit by at least one moderate event – an impact equivalent to 5 per cent to 10 per cent of revenue – with around one third impacted by at least one high impact event (10 per cent – 20 per cent of revenue).
That represents an impact of $16 million per business on average.
Seven per cent of organisations reported they had experienced an extreme impact on business from such events.
‘‘The main implications for procurement experts in relation to
Small businesses don’t have the same level of reserve they can call on to survive through hard times.
these events were supply quality and performance issues, supply chain disruptions, procurement failure and supplier disruptions,’’ the report said.
‘‘However, this is considered business as usual, and procurement experts expect the same level of disruption in the future.’’
The events noted were the global financial crisis and natural disasters including the Canterbury earthquakes and the Japanese tsunami. However, a range of other events were also reported including industrial action (11 per cent), ships being lost or grounded (7 per cent) and geopolitical events (4 per cent).
The combined value of these impacts was an estimated $1.9 billion, with natural events contributing $560m. That indicates New Zealand’s understandable focus on the impact of natural events could mean we are not paying enough attention to those types of impacts, Ross Darrah, Grant Thornton’s director of business transformation said.
The survey also indicates the global financial crisis has damaged smaller companies the most on average while large events such as the Canterbury earthquakes and Japanese tsunami have hurt larger businesses.
‘‘Small businesses don’t have the same level of reserve they can call on to survive through hard times,’’ Darrah said.
They also are already running lean, so don’t have as much fat to cut as larger businesses.
That means they are often supported by their banks and that in turn could mean they are paying the price for years after the crisis ends.
Procurement managers should formalise risk management training.
Processes should embed risk assessment and planned response as part of the procurement evaluation.
Management of supplier relationships should include ongoing assessment and response to risk.
2.
3.