Supply Risk Management: Understanding Cumulative Supply Risk
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. Enjoy!
Mapping the types of supply risk to the typical sourcing and supplier management steps demonstrates that supply risk actually builds through the process. Indeed, by the time a supplier is selected, the majority of supply risk is locked in. The figure below describes how cumulative supply risk increases across supply management processes.
But while supply risk increases and is locked in over time, the good news is that companies that focus on improving their supply risk management capabilities can lower and then mitigate supply risk throughout the process.
Supply managers can improve their ability to manage strategy risk with supply risk management by improving the visibility into accurate spend and supplier information, gaining better access to information about new suppliers and supply market dynamics, and upgrading the skills and abilities of the organization.
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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