Managing Risk Beyond the First-Tier Supply Base – Why Is It So Challenging

We have a new briefing paper (sponsored by riskmethods, but written independently) available to download now. It is titled Supply Chain Risk – Getting To Grips With n-Tier Visibility, and  you can get it here, free on registration.

It looks at risk in the supply chain, and in particular focuses on the challenges around managing risk beyond the first-tier supply base.  Getting to grips with second tier or even further down the supply chain (hence the “n-tier” title) brings some real issues for most buyers. In today’s excerpt from the paper, we outline exactly why this is such a challenging area.

 

The Challenges of Managing Second-Tier Risk

Getting to grips with supply chain risk is not easy for a number of reasons, but when we look at the n-tier, the issues are even more challenging. For a start, firms may well start from a position of simply not having any real knowledge about that wider supply chain. Organisations do know who their direct suppliers are; whilst that information is not always easily available, ultimately there will be records of who has been paid.

Buyers may struggle to get access to the second tier and beyond because there is no direct financial link with those firms (unlike with direct first-tier providers), and some first-tier suppliers may not wish to expose their own supply chains. That may be for legitimate reasons; they may feel that their suppliers give them competitive advantage. Or it may be for less good reasons. Perhaps they know there are vulnerabilities there: a dependency that their customer might understandably worry about or something even more serious (perhaps their “beef” supplier has connections with the horse industry …).

There are also challenges around the sheer size and scale of the issue. If an organisation has 100 suppliers of direct materials that it may want to consider as part of the risk management process, then each of those might have ten, twenty or more second-tier suppliers that impact the supply to the end-customer. This obviously multiplies at each level where we have multi-tier supply chains.

In practice, those firms at the second tier and beyond may be less inclined to be helpful as they do not have the direct link to the end-customer. Whereas the buyer has the threat of withdrawing business if a first-tier supplier does not co-operate, that threat cannot be used easily with second-tier firms. Nor can the buyer offer more business or other benefits to that second tier.

Those specific n-tier issues sit alongside the more general points that need to be addressed for even first-tier suppliers  …

 

(To read more, download Supply Chain Risk – Getting To Grips With n-Tier Visibility, here, free on registration.

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