☛ Want the latest procurement and supply chain news delivered straight to your inbox? Sign up for the Supply Management Daily
24 February 2012 | Adam Leach
Risk management, particularly of commodity
volatility and supply chain disruption, is of increasing importance to CFOs.
Speaking on a panel at The Economist CFO Summit in London yesterday, Ed Ainsworth,
managing director at 4C Associates, argued that with
more companies failing as a result of the economic situation, and events such
as the earthquake in Japan and the flooding in Thailand, an inability to obtain
supplies is a greater risk to businesses. He also cautioned companies to think
more about localised disruptions such as a fire at a supplier’s factory.
“One of the discussions I think businesses
need to be having more is about the risks associated with working with other
companies working in their supply base,” he said. “Typically most organisations
have 60 per cent of their spend with suppliers.”
Wolfgang Kniese, CFO at T-Mobile Austria highlighted the need for
companies to pay more attention to vendors further down the supply chain. “One
of the things that we learnt is you have to look one step further than your own
suppliers, because one of the consequences of Japan was that some of the
handset manufacturers ran into problems. Of course usually we look at our
vendors - not our vendor’s vendors - but if all your vendors have the same
supply chain behind them then that is a huge risk,” he said.
Kniese added that as T-Mobile is more about
infrastructure than cashflow, it is not necessarily as risk-exposed as
companies in other sectors. But while that limits the amount of risk they have
to worry about, it can put them at a disadvantage in possessing the capability
to deal with it. To tackle this dilemma, he said: “I would look to get someone
in from the production industry and have a procurement conversation with them
about how they streamline production processes and manage procurement.”
According to Luca Zaramella, senior vice-president
finance at Kraft Foods Europe,
highlighted the need to have a flexible risk strategy that encompasses multiple
factors.
“A corporate strategy never stands alone,”
he said. “What we do is we take into consideration our commodities strategies
and coverage, we take a look at our pricing ability and our competition and
what they might or might not do, and we try to come up with a strategy that is
flexible on all sides and minimises the risk.”
Asked by SM to reflect what the long-term impact of the disruption in Japan
and Thailand would have on risk management in general, Zaramella said: “To
never relax because what we have seen are commodities spiking dramatically and
that is what is causing problems, so let’s make sure we keep our eye on the
ball.”