Supply Risk Management: Real-World Performance Risk Examples
This post is based on the FreeMarkets white paper (published in 2003) that I co-authored with Mark Clouse, Global Supply Management: Strategies for Identifying and Managing Supply Risk. I recently dusted off the paper for my own research into supplier relationship management and found an analysis that was nearly every bit as relevant then as now.
As context for this post, “market risk” is one of five drivers of supply risk we identified in this paper originally. The others are strategy risk (reference here and here), demand risk, implementation risk, and performance risk. Enjoy!
Oftentimes, companies are not aware of the performance risks they face in monitoring and managing their global suppliers. But proactive companies have already begun to tackle performance risk by setting up systems to monitor and manage it. One large global manufacturer was able to prepare for the impending bankruptcy of a major supplier through predictive financial performance monitoring tools.
Some companies refuse to advertise in certain publications that they deem offensive because of their political views. This can bring additional risk by alienating those who believe companies should not bring political views into business. Political considerations can, in some cases, directly influence and usurp production. For example, Hugo Chavez nationalized a number of plants in Venezuela to counteract a national strike protesting his policies. Realities like these seem to be a distinct possibility across the globe, where increasing instability could force many regimes to redirect national resources (including private businesses) to manufacturing at a time when the threat of conflicts might appear to outweigh the economic damage caused by such action.
These are just a few examples. Companies who do not develop a strong supplier screening process, and those with poor supply chain visibility (e.g. what is your supplier’s supplier doing?) are at the greatest risk. But those who fail to maintain an ongoing dialogue with their suppliers beyond production issues, as well as those who fail to understand the overall regional, economic, and political conditions are at risk as well.
Organizations must consider the consequences of supply interruption, bad press, and lost market share that social and geopolitical risk can bring. The business consequences of failing to address it early on—from poor end-customer satisfaction to pulling in other resources such as quality and engineering to bring things back on track—can be costly and expensive to remedy.
Curious? Drop Sydney a line (firstname.lastname@example.org) and we’ll send you out a copy of this dusty old analysis! Some topics are timeless. And supply risk is one of them.
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