Supplier / supply chain risk; how mature are you?

I'm not giving anything away to say that when we do get round to our serious predictions for 2010 (and tomorrow you'll see why I included the word 'serious' there...) then supply risk is going to feature pretty strongly.  So if you're interested in that topic - and who shouldn't be - take a look at the piece from Spend Matters US here.  A basic three-level maturity model for supply risk management is outlined, which forms a great basis for any organisation who wants to do an initial assessment of where they stand.

I'd add one point that applies to the more advanced organisations in this field.  I had an example of this recently from a friend who is a senior procurement exec in a very high profile organisation (and one where supply failure may well be instantly noticed by up to 10 million people...work that one out!)

They've done some pretty advanced thinking on the issue, and what they found was that often the risk doesn't lie with their prime (first tier) suppliers.  Those (often large) companies have their own processes and plans in place - it all looked good.  But when he looked in more detail down the supply chain, it was the second or even third tier where they found real vulnerability.  And this is not just in manufacturing environments, where we might expect raw material issues for instance to come into play down the supply chain; it applied just as strongly to services.

He gave me an example of their IT supply chain.  The prime contractor, who ran most of their outsourced IT services, was pretty robust and as a large multinational had its own strong risk management processes in place.  But on closer inspection, the Prime relied on a number of small, highly specialist sub-contractors to provide services (both software development and operational delivery related) to the ultimate client that were absolutely  mission-critical.  The risk was at that level, in terms of financial stability, IP ownership, and the sub-contractors own lack of contingency or resilience planning.

So there's a lot to think about when you get into this topic; and we'll have more to follow here shortly.

Voices (3)

  1. Kevin Potts:

    Peter – funny you say that. It is the same with supplier innovation. It’s the hot topic when things are going well, but once the future looks bleak, companies drop it to focus on risk, and as you say, they drop risk to focus on cost reduction when things get really bad.

    Keivn Potts
    VP Product Management and Marketing
    Emptoris

  2. Peter Smith:

    Kevin
    Will certainly have a look at the survey.
    Are the results surprising? At first sight yes, but I guess ‘risk’ is one of those things that can get put on the back burner while CPOs focus on more apparently immediate / urgent stuff; cost saving efforts, sorting out immediate supply issues, etc. It’s a classic ‘alligators and swamps’ thing – or illustration of the ‘urgent versus important’ paradigm!

  3. Kevin Potts:

    Peter – so supply risk is going to feature strongly in your upcoming predictions for 2011. I agree. What surprises me, however, is how few companies have a process for tracking risk in the supply base and how few use supply intelligence to make strategic decisions. That is, at least on the other side of the Atlantic.

    We recently partnered with the Institute of Supply Management (ISM) to survey over 400 supply management professionals. 60% of respondents told us that Procurement Key Performance Indicators (KPIs) are not tracked by the C-Suite. Only a third claim supply base intelligence is used to make decisions that impact their company’s performance. With supply risk mitigation being so important, and with supply intelligence being necessary to drive risk mitigation strategies, wouldn’t you think it should be higher?

    You can read more on the survey results at http://emptorisinc.blogspot.com/2010/12/reducing-costs-remains-top-procurement.html

    Kevin Potts
    VP of Product Management and Marketing
    Emptoris, Inc.

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