leadership characteristics
Leadership Characteristics to Improve Supply Chain
June 8, 2020

Risk Management Techniques for Your Suppliers

risk management techniquesThe situation companies find themselves in today is perhaps, to say the least, a wake-up call. It should undoubtedly relay the message that guaranteed, at one point or another, is the significant impact of a natural or human-made disaster. Sure, you already know this, though. However, there is a specific question to ask yourself about your risk management techniques. Is your organization ready, and do you indeed have a continuity plan for when this event arises?

From a supply chain perspective, the same question needs to get asked of your supply base. For instance, does each of your critical suppliers have a business continuity plan? And do you know if this is in alignment with your needs? Or how about this? Perhaps at this point, you have put in place a basic supplier risk management plan. Now that the world economy has hardened, are you getting the information to get beyond the basics? If not, your company’s risk management could be in for a shock, and contrary to how supply chain works well.


Mapping Risk Management Techniques

Maybe you’re wondering where to begin? That answer is simple. You have to always start by mapping your supplier risk. And, that goes with everything from your marketing services suppliers to those who you purchase parts for your products. In turn, a thorough business impact analysis will provide you with a detailed view of how ‘interruption’ events could affect your business. Also, when the economy goes into decline, you have the reduction or loss of production. As a result, your risk management has to consider the reduction or loss of personnel or facilities. Equally, you may lose suppliers along the way, what impact might this have on your company?

Therefore, mapping risk management is vital to the success of your business. Begin by knowing your critical suppliers. By doing this it allows you to put in place a tested process to recognize essential products and suppliers. Now you need to ask yourself; what would your company do if a supplier or the product they provide is suddenly no longer available? Do you have an alternate supplier or service provider? Have you thought of a substitute product? Or, have you designed a supplier into your product?


Ensuring Initial Risk Management

When you assess risk management, ensure to make an initial risk assessment of your supplier. To do this well, look at the following, and to include:

  • Location
  • Contract obligations,
  • Service level agreements
  • Rights to audit
  • Leverage with a supplier
  • Financial stability and exposure
  • And, alongside the identified critical goods and services, what else do they provide?

With this process in place for your risk management techniques, you are better prepared. Perhaps you can lessen the impact of a crisis and enhance your recovery—if not prevent it altogether. Also, you will know who has the most impact on your organization. As a result, you’ll find a greater appreciation for when and how you might see any effect. In reality, risk management is a continual exercise, you need to simulate again and again the most probable interruption events.


Critical Risk Factors for Suppliers

Supplier risk has various critical factors in risk management. Although the following is not an exhaustive list, it’s worthy of consideration for risk management.

  • Revenue and inventory, including its impact or the loss of either.
  • Suppliers’ location geographically and their proximity to your company. For risk management today, we see borders closed, airlines grounding flights, etc. In general, you have to know the regulatory cross border issues.
  • Does the supplier location represent a higher geopolitical, labor, or merely geographical risk?
  • Capacity and performance of suppliers. So, what can they substantiate from both an increase and decrease scenario?
  • Contracts and framework agreements. For instance, promotional or preventative to ensure a better and healthy mix of both. In other words, know your options!
  • Impact of needing to change quickly to an alternate, critical supplier. Proper risk management techniques ensure you understand if your assessment been rigorous enough. For example, have you gained all the necessary approvals for your company and its customers? If this same supplier has successfully delivered small quantities/low service levels, what happens when this is stepped up?
  • Complete due diligence on a supplier’s financial health, IT/physical security, technology, and all operations, support functions.


Risk Management Going Forward

With all of the above at hand, now is their time to collate, analyze, and react for risk management going forward. It is time to be thorough, consistent, professional, and prepared. When you assess, the reality might not meet your expectations or requirements. And if so, then what? Or, perhaps you realize you are not as relevant to a supplier as you thought! Ultimately, you need to know the level of risk you are prepared and capable of accepting. Also, you have to understand this may be on a supplier by supplier or product/service by product/service basis. In other words, you need to be flexible. And if your reaction has room to be flexible, you can consider a number of combinations of strategies.


About the Author: Elaine Ditty is a supply chain management with more than 20 years of experience in the industry. Also, she is Master’s educated, and her experience includes work at management levels for world-class service providers.


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