Supply Risk Management: Assessing Supply Risk and Risk Probability
This post is based on the following FreeMarkets white paper (published in 2003) co- 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!
The risks that come from supply decisions are significant and on the rise. To mitigate these risks, it’s important to understand where you’re exposed and what the potential implications are. The challenge is not only assessing risk for an individual part or service, but also rolling those up to identify compounded risks—at the category, supplier, program, and ultimately the customer level.
This diagram lays out a five-step process for assessing and managing supply risks:
Supply Risk Assessment Process
We will now explore Step 1: Assess supply risk probability
The first step is assessing supply risk at the individual material or service level. Begin with the top materials and services—those that account for the most spend, touch your most important customers, or go into your most critical programs. As with all risk analyses, there are two dimensions of supply risk. The first is probability, or the likelihood that a failure will occur. The second is impact, the severity of the result if something does go wrong. The table below lays out categories and assessment guidelines for supply risk probability.
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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