ROI via visibility into your supply chain and suppliers
5 Ways Supply Chain Risk Management Software Provides A Quick ROI – Part 2
In part 2 of this 5 part series we show you how to save a lot of time and money through creating near real-time visibility into your supply chain and suppliers.
ROI Through Supply Chain Visibility
Transparency across the entire supply chain and, as a result, the identification and evaluation of a current risk situation for sub-suppliers as well, is a significant part of SCRM. The reason for this is obvious, and was clearly underpinned in 2013 by the Business Continuity Institute:
- 42 % of all supply chain disruptions stem from tiers below the immediate suppliers
- 75 % of companies have no transparency in the sub-structures of their supply chains
- A high degree of manual effort to identify current situations and current changes in 2nd-tier supply chains
- No process or tools to incorporate these situations and changes into risk monitoring
The effort for enterprises is estimated at approximately 30 minutes per year and supplier. Even if this process is well supported by electronic voluntary supplier information. These efforts are for example:
- Dispatch or activation of the questionnaire (e. g. via voluntary supplier information)
- Follow-up on unanswered questionnaires
- Follow-up on incomplete or incorrect answers
- Transfer of the answers (sub-tier supplier master data, logistics hubs, data on recovery timeframes, etc.) into the risk monitoring process
- Request for individual risk data sources (credit ratings, geo risk profiles, CSR information, sanctions tests, country risks, etc.)
In 2nd-tier identification, if one uses a conservative estimate of an average of 5 sub-suppliers, the effort for 100 1st-tier suppliers alone is calculated at 300 working hours. As these tasks are typically performed by lead buyers, commodity manager and/or logistics experts, an hourly rate of $ 50 can be expected.
This means that the work effort in purely monetary terms for a company to identify 2nd tiers, follow-up activities, updating and risk data queries is $ 15,000 per year.
2nd-Tier Supplier Visibility Cost to be reduced by 58 %
However, if a company makes use of an expert-supported, software-based supply chain identification service, these costs can be reduced by an average of 58 %. In terms of money this means yearly savings of $ 8,700 in our example (please refer to this study).
Alternatively, this regained working time (300 hours per year) can be used by procurement and logistics management for more value-creating activities.
Here you have it: your ROI – based on creating visibility into your supply chain and your suppliers based on a expert supported and tool based supply chain identification service for our example company from this study: Annual Savings: $ 8,700. ROI type: Savings*
* All figures and assumptions in this article are based on the ROI Study ‘ROI of Supply Chain Risk Management’, which you can download here. Please refer to the study and the section ‘Process Model of the Study And Definition Of Terms’ for further details.