June 24, 2014

The ROI for Resiliency: Turning Commodity Managers Into Risk Managers

Jon Bovit


Resiliency is about protecting your supply chain from disruptive events and recovering quickly when a damaging risk turns your operations upside down. But, it’s much more than that. Resiliency is also about shielding your bottom line from long-term negative impact.


Interestingly, though, the return on investment (ROI) that comes with implementing supply chain risk mitigation strategies and resiliency solutions is sometimes overshadowed. Because companies often approach resiliency in a knee-jerk, reactive way and put business continuity plans in place only after a disaster strikes, there’s less time spent assessing the immediate and future financial benefits generated by a comprehensive risk management initiative.

As a result, companies are leaving a considerable amount of money on the table, as our research and work with clients show. The potential ROI from resiliency-building programs affects various business aspects, ranging from productivity improvements, to significant insurance cost reductions or to faster uptime post-disaster.

The Next Phase of Commodity Management

One important area that could produce substantial “soft” benefits very quickly when the ROI for resiliency is more thoughtfully considered comes from aligning commodity management practices to the risk mitigation strategy.

Traditionally, as supply chain organizations have evolved, commodity managers and purchasers have become the default go-to experts for anything related to the supplier base. Their intimate knowledge about the approved vendor list, parts pricing and supplier reliability have made them valuable information resources to other teams and C-level executives.

The downside to this expertise has translated to a productivity issue. The commodity management team is one of the most frequently tapped organizations within a company due to their deep knowledge of supply chain workings. Since they are often bombarded with questions requiring quick responses or time-consuming spreadsheet reviews, commodity managers do not have the bandwidth to take on the higher-value tasks of carefully managing the entire supply base or tracking potentially disruptive events that could hurt supply chain operations.

The issue is exacerbated by another factor. For a number of reasons, many companies rely on spend-based decision-making processes largely aimed at getting price reductions from the top 20 percent of suppliers representing 80 percent of company’s spend. If only 20 percent of the supply base is being watched on any consistent basis and commodity managers are busy negotiating lower prices, logic follows that a long tail of supplier activity falls off the radar screen. This opens the company up to greater risk across multiple tiers of suppliers.

If these scenarios were turned around and companies saw commodity managers as gatekeepers for risk mitigation, imagine how much time, effort and savings could be recouped and how much more strategic their role could be in lowering a company’s risk exposure.

By shifting perspectives and workload, commodity managers could be vital support channels in making the supply chain AND company’s bottom line resilient. 

There’s more at stake than what lies on the surface. Supply chain resiliency and risk management initiatives have the potential to deliver great value to companies willing to uncover them. To learn more about the ROI for resiliency, take a look at our latest whitepaper.

Topics: supply chain resiliency, supply chain risk mitigation, ROI of resiliency, supply chain risk management