Reduced Supplier Risk

Evidence and data. Each interviewee said that by investing in Prewave, their organization reduced costs related to supplier risk, which they consider to be the largest benefit in some ways. They also shared that typically during the first year, the tool enabled better management of supplier-related crises because it provided alerts sooner than what they were accustomed to. This enabled teams to act faster and reduced the impact of each crisis.

Interviewees explained that beginning in Year 2, their organizations used the platform to proactively manage and mitigate risks to avoid crises altogether, which was a longer process aligned with broader organizational goals. They said evident impact was observable after the first year as procurement and other teams addressed suppliers identified as the greatest risks. Furthermore, they noted that by implementing the Tier N transparency module, their organizations extended their risk management efforts beyond direct suppliers, which enhanced visibility into their suppliers’ supply chains. This enabled them to identify and mitigate risks associated with second-tier and lower-tier suppliers and ensured comprehensive oversight of potential vulnerabilities beyond organizations directly engaged with their procurement teams.

• The Tier N management lead at an automotive organization explained: “[The  2024 collapse of the Francis Scott Key Bridge in Maryland] could have had an impact on our production, but we were able to identify likely suppliers using that port and, with Prewave, bring this down to a much smaller number to then need to contact and deal with. One week versus two weeks of analysis is a very tangible benefit.”

• The same interviewee said: “There is also the tangible impact of air freights, quick deliveries, or the need to source from another country, which has a similar part — all additional costs at the end of the day — that I can try to mitigate if I catch the risk or crisis earlier and I mitigate it in a good time.” They also noted: “[We have a] one-week faster crisis response. The big benefit is that we can respond quicker than competitors.”

• The manager of procurement at the manufacturing organization said: “There are fewer events happening. But, for instance, it’s very difficult to compare the impact of [the COVID-19 pandemic] and the initial impact of the Ukraine war [from year to year]. But we do have fewer production stops today.” They also said, “We have been able to move away from specialist task forces to act in case of supplier issues.”

• The head of sustainability at the automotive components organization said: “You avoid more risky suppliers, which cost you more money because there is more negative effect. … We wanted to not just be reactive to risk management. We wanted to be less reactive and more active in the handling of risk management.”

Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:

• The composite has 20,000 suppliers.

• It spends 50% of its revenue on direct suppliers, which leads to an average spend of €500,000 per supplier per year.

• Before investing in Prewave, 5% of the composite’s suppliers carry high risk.

• Of the high-risk suppliers, 5% experience a crisis in a given year. This results in crises affecting 0.25% of total suppliers, or approximately 50 crises per year.

• The composite treats this estimate as conservative compared to periods of elevated global disruption.

• Each crisis costs an average of 10% of the average spend per supplier (€50,000), resulting in a baseline annual crisis cost of €2.5 million.

• Crisis response requires an average crisis task force of three FTEs over a two-week period.

• The composite reduces its incremental supplier-related crisis costs and crisis task force costs by 40% in Year 1, 60% in Year 2, and 85% in Year 3.

• Over time, high-risk suppliers are managed more effectively, and risk exposure declines as the Tier N transparency module is implemented.

Risks. The impact of this benefit could vary for some organizations, due to:

• The number, strength, and impact of crises.

• The size of the organization’s crisis task force and the duration of the team’s involvement.

Results. To account for these risks, Forrester adjusted this benefit downward by 15%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of €3.2 million .

Improved Compliance

Evidence and data. Three out of the four interviewees said their organization implemented both the resilience and sustainability modules of the Prewave platform and explained that an important driver was new regulations that require increased transparency and reporting (e.g., LkSG, EU regulations related to corporate sustainability). Organizations risk significant penalty fees if they do not comply with these regulations, and noncompliance penalty fees for large organizations are often based on a percentage of regional or global turnover. This can equate to tens or hundreds of millions of euros.

• The head of sustainability at an automotive components organization said: “If you violate ESG rules of the German Supply Chain Act, it could cost you millions. Therefore, this is a preventative activity.”

• The manager of procurement at the manufacturing organization said: “There would have been 40 times the effort required to do the ESG supplier screening manually. That’s equivalent to four to five FTEs.”

• The Tier N management lead in the automotive industry said their organization is thinking about adding the sustainability module. They said: “I see synergy effects. For example, for the deforestation [regulations], I know a lot of players are using Prewave. So if I make the decision to use it for the deforestation regulation, then there is a definite synergy effect there as well, where I can see more risks and leverage the fact that [Prewave is] vetting more supply chains than just mine.”

Regulations And Penalties

Source: European Union, European Commission, German Federal Ministry of Justice,  US Customs and Border Protection

Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:

• The composite launches the sustainability module at the beginning of Year 2.

• It avoids hiring four additional FTEs for compliance and regulatory work.

• The composite avoids noncompliance penalties of €1 million in Years 2 and 3. This is a conservative estimate.

Risks. The impact of this benefit could vary for some organizations due to:

• The regions where the organization is active and their regulatory burdens.

• Whether the organization has already invested in alternative ways of ensuring regulatory compliance.

• The timing of the launch of the different modules.

Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of €2 million.

Procurement Efficiencies

Evidence and data. Interviewees explained that prior to their organizations’ Prewave investments, procurement teams spent a considerable amount of time researching and doing background checks on new and potential new suppliers.

• The head of operational procurement at the industrial manufacturing organization explained: “The platform gives the possibility to rank and rate lots of suppliers in almost no time. We get KPIs regarding human risks and environmental risks in our supply chain, and we are able to prioritize and rank them. That saves a lot of time and effort.”

• The head of operational procurement at the industrial manufacturing organization told Forrester: “[Prewave] reduces the supplier background check effort by 95%, and there is a massive reduction on the overall workload. But there is also more detailed work needed for the risky suppliers.”

Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:

• Prior to the Prewave investment, the composite conducted background checks for a quarter of all suppliers, and because it did not have the resources to check all suppliers on a regular basis, checks were usually focused on new and key suppliers. Each check required an average of an hour of effort by procurement executives.

• With Prewave, the composite reduces this effort by 95% in Year 1. This reduction increases to 97.5% in Years 2 and 3 after many risky suppliers have been identified.

• There is also a corresponding increase in supplier risk research effort for the 5% of suppliers identified as high-risk (see Cost G).

• Forrester applied a 75% productivity capture rate to these efficiencies because not all time saved necessarily goes back into productive effort.

Risks. The impact of this benefit could vary for some organizations due to:

• The portion of suppliers the organization regularly checked prior to the Prewave investment.

• The salary rates for procurement executives.

Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of €292,000.

Legacy Tool Decommissioning

Evidence and data. Some of the interviewees said their organizations replaced existing tools with Prewave, which led to savings.

• One said their organization decommissioned two legacy tools to some extent, including a risk management tool and a sustainability and compliance platform.

• Another said their company was able to replace a business intelligence team and associated tool to some degree.

• The other interviewees noted their organizations did not have any legacy tools, but they said the efficiency gains with Prewave were significant because the companies previously depended on time-consuming manual processes that were prone to error.

• Regarding resilience and sustainability, the Tier N management lead at the automotive organization said it’s helpful not to rely on multiple vendors for different tools: “There is always a benefit to using the same vendor.

Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:

• The composite previously had a legacy tool that cost €75,000 annually.

• The organization saves 25% of this cost in Year 1, 75% in Year 2, and 100% in Year 3 and beyond.

• The legacy tool also required maintenance, which cost 10% of the fees.

Risks. The impact of this benefit could vary for some organizations due to:

• Fees for the legacy vendor.

• Whether the organization is locked into long term contracts, which could lengthen the decommissioning period.

Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of €119,000.

Unquantified Benefits

Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:

• Strengthened customer trust through delivery consistency. Some of the interviewees highlighted that their organization’s investment in Prewave contributed to business growth. They said supply chains became less risky and the impact on production was reduced, which made their companies more reliable suppliers, and allowed them to charge premium prices and win deals over competitors. Furthermore, they explained that better compliance and stronger sustainability credentials gives their organizations a competitive edge. The head of sustainability at the automotive organization said, “If you work with noncompliant suppliers, it can impact your business and potentially even lose you revenue.”

• Improvements to strategic risk planning and management. Interviewees said Prewave improved their organizations’ overall risk management. They explained that because the platform integrates with financial risk management tools, investors and creditors have more visibility and better transparency in terms of risk, which can indirectly lead to easier access to credit and increase attractiveness to investors. The head of sustainability at the automotive components organization said, “It augmented our existing financial risk tool.” And the head of operational procurement at the manufacturing organization said: “It also helps in terms of investor confidence. They are asking more and more questions about this.”

• Reduction of risking reputational damage. While the financial model quantifies the composite’s reduced supplier risk in terms of reduced costs, this does not account for the potential impact on reputation. Working with noncompliant suppliers or noncompliant suppliers of suppliers can put an organization’s reputation at risk, and this is particularly the case for suppliers that are not direct (Tier N). Interviewees noted that although procurement executives usually vet new suppliers, it’s much less common to vet the suppliers of their suppliers. The head of operational procurement at the industrial manufacturing organization said, “A publication scandal can cost millions.”

Flexibility

The value of flexibility is unique to each customer. There are scenarios in which a customer might implement Prewave’s holistic supplier risk management platform and later realize additional uses and business opportunities, including:

• Optimizing the module implementation journey. Interviewees said resilience and sustainability are the two core components of the Prewave platform and explained that an organization can choose which to implement first or decide to implement both at the same time based on priorities, skills, and setups. They also noted the Tier N transparency module can also be added at a later stage.

• Having support for upcoming regulatory requirements. Interviewees said Prewave is adding support for new regulations (e.g., CSDDD, EUDR), and that this means fewer resources will need to be allocated to ensure compliance.

Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Total Economic Impact Approach).