This is a guest post by Hariharan Laxminarayan
"knowing supplier's risk - knowing
your Supplier better"
In today’s day and age, in which
outsourcing can be the norm, and not only major global corporations stretch
across the globe, but also potentially mid-market and mom-and-pop suppliers,
supply chains are no longer insulated from risky external or environmental
events. These risks can range from a natural disaster, such as the Japan
earthquake and tsunami, to lax safety policies, in the case of the Bangladesh
garment factory fires, the fallout of European suppliers due to Brexit exposure
to the regular ebb and flow of business, including when a supplier is acquired
or goes out of business. These risks, in themselves, are not a new problem for
supply chain, but as the supply chain grows more complex, so do the risks to
supply, especially when visibility is blurred and there is no back-up plan in
sight.
Every company has a certain percentage chance
that it could have an operational disruption of some sort. If a company that
independently has a 97 per cent chance of performing perfectly does business
with a supplier that has a 97 per cent chance of performing perfectly, the
chance of something bad happening between the two of them is higher than either
of the two of them individually. So, with every link in the supply chain, there
is an increasing chance that risk could come to fruition. The longer the supply
chain, the higher the mathematical risk. Knowing the risks of a disruption to
supply continuity, knowing the likelihood of those risks and developing an
appropriate plan for mitigating those risks are the foundational aspects of
supply risk management.
An organization can’t prevent or avoid risk
if it doesn’t know who its suppliers are, where they are located, and
therefore, what its risks are.
We’re living in an increasingly connected
and global world and saw countless examples even over the past year of supply
chain vulnerability.
As supply chains become leaner and market
more competitive, the supply chain impact of these [risk] events can be
profound. Basic mitigation strategies like safety inventory and excess capacity
are inadequate. There’s a critical need for businesses to be on offence whereby
they’re proactively collaborating with suppliers to avoid, or respond to,
disruption in a quick and efficient manner. This creates a competitive
advantage, increased speed to market, cost reductions and brand protection.
Costly outages, delayed reaction time, lack
of quality control and cost containment challenges are all major risks
businesses become susceptible to when they’re not familiar with their entire
supply base. The more collaborative and communicative you are with suppliers,
the more you can mitigate risk. It’s a matter of maintaining control and
playing defence and offence at the same time
Often, organizations may not know every
single supplier of every single component, but they can get down to any
critical components, and they need to know what those are and where that’s
coming from. Once they map it out electronically, it becomes much easier. If
they want to be able to link it, they should take that network for any specific
product line or SKU, and look at that supplier network, and map it out and
visualize it, so they can make changes. They can also tie that in with risk
management software solutions that can be predictive in telling an organization
where there’s political unrest or weather issues or something else going on.
They can look at it across that supplier network to see where they need to
maybe take some action
Organizations and Buyers should identify
high-risk suppliers based on the financial impact on the business, but he also
adds the time to recover for the business in case of a disruption.
There needs to be a constant assessment of
strategies—including back-up options, inventory management, rapid response
manufacturing, etc.—that can be put in place to manage any risks with these
suppliers. Increasingly, it is important to start evaluating the risk impact of
a supplier change as part of this process.
Familiarize yourself with the suppliers.
Knowing and measuring the potential financial impact and time to recover from
risks driven by suppliers can help an organization manage its risk profile and
take corrective/predictive actions as needed.
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