5 risky suppliers to watch using cognitive computing

How to continue doing business in an era of growing risk

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Among the big, thorny issues that cognitive computing can help solve, supply chain risk management has grown increasingly urgent as global supply chain risk hits a record level

Unforeseen supply chain problems can cripple or destroy a business, and that's before you factor in things like regulatory costs and reputational risks.   

Here are five risky suppliers to watch for:

1: The supplier who links you to forced labor. What are the chances that none of your global suppliers connects you to any of the nearly 21 million people who are victims of forced labor? Labor and workforce abuses now lurk behind many, if not most, items sold to consumers in developed countries, and worldwide attention has focused on forced labor since a Bangladesh factory building collapse killed more than 1,100 workers in 2013. Most companies know they are likely to have forced labor in their supply chain, creating the potential for serious reputational damage as consumers become more interested in the origin of their products.

2: The supplier who threatens your cybersecurity. Cyberattacks and data breaches rank among the biggest threats both short-term and long-term, according to the Business Continuity Institute Supply Chain Resilience Report 2016, yet most companies fail to monitor the security and privacy practices of vendors with whom they share sensitive or confidential information. Retailer Target learned what can happen the hard way when stolen credentials from a supplier led to a breach that exposed data on 110 million Target customers and resulted in 140 lawsuits. The lesson: Your data and reputation are only as secure as your most vulnerable supplier.

3: The supplier who's about to go bankrupt. So much attention goes to events like natural disasters that it's easy to overlook the risk of supplier insolvency, but insolvency has emerged as a new short-term threat. Last year the world's seventh-largest cargo carrier filed for bankruptcy, leaving dozens of ships and more than $14 Billion in cargo stranded at sea. Inland, the bankruptcy of a small family–owned supplier in Massachusetts threatened to shut down General Motors' production across North America. You need confidence that suppliers have enough liquidity to process the next big order on time.   

4: The non-compliant supplier. As regulations, trade agreements and customer expectations change faster than ever, it's hard even to know which requirements affect you let alone figure out what they mean. Depending on your business, you may need to consider Europe's REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) and RoHS (Restriction of Hazardous Substances) legislation, the UK Modern Slavery Act, the California Transparency in Supply Chains Act, or new conflict minerals regulations among others. In this environment, SAP Ariba has identified the increasing importance of regulatory compliance.  Says Vice President of Products and Innovation, Padmini Ranganathan, “As supplier relationships continue to evolve in sophistication and global scale, companies need to be responsive to changing conditions, particularly in high risk environments impacted by regulations.”

5: The supplier you didn't know you had. How far downstream do you have visibility? A company like Ford can have 10,000 indirect suppliers; Nestle has identified 10,000 tier one suppliers; and a growing proportion of incidents now occurs at lower tiers, according to the Business Continuity Institute. Anything made with agricultural or mineral commodities can be especially hard to trace, according to the Department of Labor, since the raw materials come from far-flung places and are co-mingled early in the supply chain.

The good news is that cognitive computing approaches are reinventing supply chain risk management, bringing down not only the costs of an effective program by automating what wasn't previously practical. SAP Ariba has just introduced a supply chain risk module, picking up on details that humans would traditionally have to uncover. BitSight and SecurityScorecard among others can look at traffic patterns as indicators for third-party cyber risk.

Cognitive computing approaches offer a way to analyze supply chains much like a human would (but without getting tired), identifying linkages and scanning deeper than traditional automated systems. Critically, these new systems can also typically monitor in realtime, so that businesses know immediately when things change. For example, they can identify a negative event such as a government fine or some bad press as a leading indicator for bankruptcy risk well before the supply chain disruption occurs.

With the promise of increased oversight, faster detection, and lower costs, cognitive computing approaches can help companies tackle one of the toughest issues many face: how to continue doing business in an era of growing risk.

Copyright © 2017 IDG Communications, Inc.

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