In recent years, manufacturing organizations have moved on from pursuing often narrow programs tackling supply risk focused on first-tier supplier financial viability to looking at broader risk areas such as environmental, weather, labor, corporate social responsibility (CSR), and environmental health and safety (EHS) – including but not limited to tier-one suppliers. Taking into account the extended supply chain as part of supplier risk management is often an order of magnitude more complicated than just looking at the immediate supply base.
Given the limited exposure many companies have to the extended supply chain, the gateway to learning more about lower tier vendors may rest with how much our tier-one suppliers know about their own supply base. In a recent article, Sourcing Journal Online published a list of “7 questions to ask to assess risk and ensure supply.” Many of these queries will individually say quite a bit about the level of risk our tier-one suppliers are building into OEM supply chains overall – or whether they’re reducing comparative risk exposure.
Here are a few questions that stand out:
- “How early and often are you collaborating with suppliers? Are you sharing forecasts?”
- “Do you have true visibility into key events in the production lifecycle, into WIP [work in progress]?”
- “Do you have accurate information regarding inventory and raw materials?”
- “Do your suppliers have access to capital? At what rates are they borrowing? Are they leveraging your credit strength to eliminate capital costs? Are you aware of your suppliers’ financial health?”
I would also suggest the following questions:
- Do you have a supplier code of conduct? If so, are suppliers required to sign and attest to meeting its guidelines?
- What is your process for onboarding suppliers and maintaining current supplier information (e.g., insurance, certifications)?
- Do you understand geographic concentration of lower tier supplier for raw or base materials? Are they coming from the same region?
- Do you have any “sole source” items or categories? If so, do alternative suppliers exist and have you pursued relationships with them?
- Do you have supplier performance management (including KPI-based measurements) and supplier development programs formally in place?
- Have you had supply disruptions in the past ten years? If so, please explain the situation(s) and what was done to address the challenge(s).
These questions (and the ones listed in the Sourcing Journal Online article) are just a start to defining and pursuing a multi-tier supply chain risk management strategy. But taken together, they should provide a level of visibility into tier-one supplier management practices and the broader opportunity that exists to identify and reduce risk in the extended supply chain.