Monitoring risks in a changing world
August 05, 2014
Continuous monitoring of a retailer’s risks against online information sources can pre-empt exposure and maximise opportunities (as featured in The Retailer).
In 2013, the Rana Plaza building in Bangladesh collapsed in an accident which killed over 1,100 people, even though cracks in the structure were reported by local media when the building was evacuated a day earlier. The resulting international media storm demanded answers from those companies that had commissioned clothing from the textile factories in the building. In future the use of real time intelligence could enhance an organisation’s ability to identify if potential supplier risks, such as safety or ethical concerns, are being raised by staff on social media or reported in local media sources.
Risk & reputations
Today’s retailers operate in an increasingly dynamic and uncertain environment, where the ability to make informed decisions quickly is more important than ever. The risks they face included political instability, bribery and corruption, supplier ethics, safety, environmental impact and insolvency, and increasingly acute competition. And all this comes at a time when customers are demanding faster more reliable and sustainable delivery, while social media wildfires threaten to destroy hard-earned corporate reputations overnight.
Against this backdrop, static traditional assessments or audits of the many operational and regulatory risks in the supply chain are no longer adequate. A risk assessment conducted in the morning can be worthless by that afternoon and may not cover evolving or unforeseen risks.
Added to this, the ability of organisations to track their key risks is likely to have a regulatory basis following the introduction of the proposed Financial Reporting Council (FRC) amendments to the UK corporate governance code, requiring corporate disclosures in relation to how risks are continuously monitored.
Rapid response
Real time monitoring of a wide range of information sources allows retailers to respond rapidly and protect themselves from financial, operational or reputational disruption. However, real time monitoring requires organisations to overcome the challenges associated with large data sets; namely understanding what to look for, where to find it and how to collect and analyse it in the most cost effective way. Whilst retailers can be put on media trial for ethical breaches, the challenge of monitoring potentially hundreds or thousands of third parties for a broad range of risks (e.g. insolvency, strikes, ethical issues such as child or forced labour etc.) are clear.
The fact that 90% of the world’s data was created over the last two years may be daunting at first but with the right tools and a targeted approach, this explosion in available information can help businesses to proactively identify risks specific to them and react. Once the indicators of risk events are understood, forward looking retailers can leverage technology to harness the big data landscape to generate genuine leading insight.
Tracking risk
Developments in smart search technology, for example, allow organisations to track risk indicators across a virtually unlimited range of information sources, from internal corporate data through to proprietary ‘paid for’ databases. Particularly valuable to retailers, given their global sourcing footprint, is the ability to identify and monitor data sources specific to the geographies and localities of their operations or business partners (e.g. weather reports and local city papers/publications etc.). These ‘on the ground’ sources provide coverage of developments that may not be deemed newsworthy at international level until a major event occurs, by which time it’s too late.
Of huge value is also the ability to employ social and local media monitoring technology to track local reactions and perceptions, which can provide global coverage of information that may not be reported in traditional media for days, if at all.
This technology is capable of taking snap shots of social media data sets every 3 seconds to capture information that might later be deleted, which is often the most valuable. Growing international access to the internet and mobile devices will continue to improve the potential for organisations to find out more quickly what is happening in remote parts of the world.
Mangoes
In a recent example, European grocery retailers were impacted by the introduction in May 2014 of an EU ban on importing Indian mangoes due to the discovery of fruit fly in a large number of deliveries. A proactive consumer monitoring supply risks could have seen similar problems beset mango exports from neighbouring Pakistan in July 2013.
Armed with this knowledge, European mango importers and wholesale consumers would have been aware of the potential for import bans and have the chance to be the first to develop alternative supply relationships.
Other risks, such as supplier insolvency, can also be monitored to pre-empt an organisation’s exposure or even gain a commercial advantage by shifting supply before their competitors. Other advantages offered by proactive monitoring include the ability to assess a market’s reaction to specific products as well as those offered by competitors.
Supply chain risk
It’s crucial that organisations define leading indicators of their most material risk exposures and harness information sources to deliver continuous risk intelligence monitoring. One forward-thinking global retailer has developed a risk matrix to increase the resilience of their commodity supply chain, taking into account a wide range of risk variables as diverse as weather patterns and potential threats to regional political stability in relevant countries.
Other companies have incorporated social media monitoring into their due diligence process of prospective joint venture (JV) partners to better understand the potential risk areas associated with the relationships. Going forward, whether delivered through externally sourced monitoring or a comparable in-house system, it will be those organisations that are able to harness real time monitoring that will enjoy reduced volatility and increased resilience.
The fact that 95% of the Fortune 500 have big data projects underway highlights the growing recognition of the potential value. Organisations that outperform in the future will be those that are first to see, and consequently are first to move - those that integrate real time intelligence into their everyday decision making and management of risk.
What are the key risks in your business and its supply chain? How have you mitigated them? Share your thoughts and experiences below or, set up a meeting to discuss your challenges confidentially.
