If you're like most manufacturers, you've spent the past few years consolidating suppliers, reducing the inventory you carry, and sourcing goods from low-labor-cost countries. These tactics have meant survival in many vertical sectors where manufacturers must drastically cut costs to remain competitive.

But global sourcing has caused troubles, especially in the consumer packaged goods industry, where quality problems and corporate social responsibility issues threaten to destroy overnight brands built up over decades. The problem for most manufacturers is that they can't pull back their purchasing from overseas to reduce risk. With threats looming large over today's increasingly fragmented supply chains, manufacturers must turn to processes, organizational behavior, and technology tools to help mitigate risk.

"The dilemma is all of those things [manufacturers] pursued to reduce cost are largely irreversible," says Jim Lawton, vice president and general manager of Dun & Bradstreet's Supply Management Solutions division. "You can't bring all of your spend back to the U.S., and you can't stock up on inventory. [Manufacturers] don't have the resources to deal with the new risks created by overseas sourcing. They need help identifying the right suppliers and discovering as early as possible where the problems will be."

There are several strategies for reducing purchasing and sourcing risk. The safest approach is a combination of software tools and business processes aimed at continuously monitoring the supply base, along with an overall strategy to reduce risk. Better managing your supply base will pay dividends by giving you a little extra time to cope with problems or potential problems as they crop up.

"If I have time, I can choose a second source, do an intervention, add some inventory, send a team over to do outbound quality management," Lawton says. "But I can't do that if I don't know where the problems are."

Advance Warning System

Potential solutions to the problem of global sourcing management come from several different avenues. For example, D&B's DNBi Supply Management is a hosted Web-based application that interacts with a manufacturer's ERP system to track current suppliers while also helping to narrow the universe of potential new suppliers. D&B has years of expertise in tracking companies' financial performance; this offering aggregates that type of data along with information from other customers to provide early warning of problems.

DNBi Supply Management sheds light on who exactly you're dealing with — something that should be straightforward but often is not when it comes to global sourcing. It also shows who your suppliers' suppliers are, which is increasingly important, according to Lawton. "Nowadays a lot of the value in your supply chain is not only in your four walls and tier 1 suppliers, but also tier 2, 3, 4 companies that you may not even be buying from." Not knowing the identity of companies further down the chain does not shield you from risk.

"We have developed an understanding of the financial performance and quality and delivery performance of suppliers around the world," Lawton says. "We have predictive analytics. We have found that suppliers will start to have delivery issues long before they have quality issues, so delivery issues are often a sign that something bigger is afoot."

On the other hand, tracking only your suppliers' history of on-time delivery is risky in itself, says Betsy Burgess, director of marketing for Centric Software, which offers a strategic sourcing product for companies in the fast-moving consumer goods sector. Most manufacturers, retailers, and wholesalers in this arena track their suppliers' on-time delivery performance, but nothing more.