Introduction

In today’s complex and interconnected world, organizations rely heavily on their suppliers to deliver high-quality products and services on time. However, this reliance also exposes them to various risks, including supply chain disruptions, non-compliance with regulations, and reputational damage. Supplier Risk Management (SRM) has become an essential function in modern organizations, helping them to identify, assess, and mitigate potential risks associated with their suppliers. In this blog post, we will explore the development history of SRM, highlighting key milestones, and statistics that demonstrate its importance.

The Early Days of Supplier Risk Management (1980s-1990s)

The concept of SRM was first introduced in the 1980s, when organizations began to recognize the importance of managing their suppliers as a way to improve quality, reduce costs, and increase efficiency. During this period, SRM was primarily focused on assessing the financial stability of suppliers and evaluating their ability to deliver products on time. According to a study by the National Association of Purchasing Management (NAPM), in 1990, only 12% of organizations had a formal SRM program in place. However, by the mid-1990s, this number had increased to 25%, as organizations began to realize the benefits of proactive supplier management.

The Rise of Globalization and the Need for Advanced SRM (2000s-2010s)

The 2000s saw a significant increase in globalization, with organizations expanding their supply chains to Asia and other parts of the world. This expansion exposed them to new risks, including differences in regulatory environments, cultural norms, and language barriers. In response, organizations began to develop more sophisticated SRM strategies, focusing on areas such as supply chain mapping, risk assessments, and supplier development programs. According to a survey by the Aberdeen Group, in 2010, 60% of organizations reported having a formal SRM program in place, with 45% of them using advanced analytics and risk management tools to support their SRM efforts.

Key Statistics:

  • 75% of organizations reported a supply chain disruption in 2010, resulting in average losses of $1.3 million per incident (Aberdeen Group)
  • 61% of organizations reported that SRM was a key factor in their ability to recover from supply chain disruptions (Aberdeen Group)
  • 56% of organizations reported that SRM helped them to improve their relationships with suppliers (ISM)

Supplier Segmentation and Categorization

As SRM evolved, organizations began to recognize the importance of segmenting and categorizing their suppliers based on their level of risk and strategic importance. This approach allowed them to focus their SRM efforts on the suppliers that posed the greatest risk to their business. According to a study by the Harvard Business Review, organizations that segmented their suppliers into different categories were able to reduce their supply chain costs by up to 20%.

The Digital Age of Supplier Risk Management (2020s)

The COVID-19 pandemic highlighted the importance of SRM in the digital age. With supply chains disrupted worldwide, organizations that had invested in advanced SRM strategies were able to respond quickly and effectively to changing circumstances. Today, SRM is more critical than ever, as organizations face new risks such as cyber-attacks, climate change, and regulatory non-compliance. According to a survey by the Gartner Group, in 2020, 85% of organizations reported that SRM was a critical function in their organization, with 60% of them using advanced technologies such as artificial intelligence and machine learning to support their SRM efforts.

As SRM continues to evolve, several emerging trends are worth noting. These include:

  • The use of predictive analytics to identify potential risks and opportunities
  • The importance of sustainability and social responsibility in SRM
  • The role of blockchain technology in improving supply chain transparency and security
  • The need for more integrated and collaborative approaches to SRM

Conclusion

Supplier Risk Management has come a long way since its introduction in the 1980s. From its early focus on financial stability and delivery performance to its current emphasis on advanced analytics, risk management, and sustainability, SRM has evolved to meet the changing needs of organizations. As we look to the future, it is clear that SRM will continue to play a critical role in ensuring the resilience and sustainability of supply chains. We invite you to share your thoughts on the evolution of SRM and its importance in your organization. What experiences have you had with SRM? What challenges do you face in managing your suppliers? Leave a comment below and let’s start the conversation!