This week on the Innovation in Compliance podcast on the Compliance Podcast Network, I am running a special five part podcast series with James H. Gellert, the Chairman and Chief Executive Officer (CEO) of Rapid Ratings International Inc., the sponsor of the podcast series, on managing Supply Chain risk. In it we looked at Supply Chain financial health and how it impacts Supply Chain risk management, the compliance function and overall businesses health. Today, we consider why doing so is such a business positive or what is the supply chain efficiency premium?
What is the ability of the compliance procurement, credit professional and other cross functional areas to have seamless communication of their data analytics and findings? Obviously, this is vitally important with a hindrance of siloed information across those different business units. Gellert stated, “what we are finding is the most evolved and sophisticated risk management programs are making sure that each one of those areas that may touch on risk is in some form or another connected with the others on findings, so there’s efficiency in that process”; from the Chief Information Officer (CIO) to the Chief Compliance Officer (CCO) to the Chief Financial Officer (CFO).
This means that data and analytics should be shared across business units to benefit from the supply chain. Continuous monitoring and understanding that when a company is deteriorating its financial health could be an indicator of problems. Further, fraud, and even corruption, is more likely to occur when the company is weak and under extreme financial duress and pressure. This is why having a leading indicator like the Financial Health Rating (FHR) is critical because it can communicate to a compliance professional when a company is weakening and enables a risk management to be focused on those suppliers who require a more focused risk management solution.
Gellert related that another “big part of it is making sure that everyone in your organization is speaking from a common language and that the analysis and the findings are shared. This means developing workflow efficiency and also creating a return on the investment for an overall risk management program.” It also allows companies to help their suppliers. Finally, it allows your organization to have a dialogue with suppliers. “It comes from transparency around financials and other risk areas and being able to perform the appropriate risk analysis that can be fostered through a dialogue. The more a company understands the problems that its supplier may have, the more it can do things to help that supplier through those problems.”
The bottom line is that companies want to continue to work with their suppliers. It is not good or even efficient business to engage in looking for ways to stop working with them. The more a business can work with a supplier in a collaborative way to help them through times of difficulty benefits everyone and allows a company that is engaged in risk management and invested in a risk management process to be able to demonstrate the return on investment to the finance side of an organization.
With this process in place, you can develop a well mapped out workflow for handling problems when they arise so that if one comes up, it allows your organization to repurpose and reuse the workflow. Gellert said it “allows for maximum leverage, maximum workflow efficiency.” Once the “tools necessary to put these systems and process are in place, they can be replicated.” Lastly, “When that occurs, the business efficiency and the gain that can come from this kind of an analysis on financial health and other risk areas really does pay dividends in the companies that do it, I think are benefiting significantly across all the different business units that it touches.”
Gellert concluded, “It’s about creating ecosystem that can grow with your business. When your business is doing well, the last thing you want to do is have the opportunity to expand, but then all of a sudden there is a problem in your supply chain that you could have avoided, but you were not being proactive enough to do so. It is very much about creating the most resilient supply chain where you are reducing risks, but you’re also expanding the opportunities to grow over time.” This is the real supply chain efficiency premium.
Check out the 5-part podcast series each day on the Compliance Podcast Network.
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