Reducing the Chance of Supplier Failure: Five Basic Questions to Ask

Over on Supply and Demand Chain Executive D&B's Jim Lawton recently chimed in with five solid questions to ask of "yourself, your company and your suppliers" to reduce the chance of supplier failure. The first, "how much do you really know about your suppliers," is almost rhetorical (i.e., not enough), but the others such as "where does the information on supplier relationships live" and "what are you doing to confront multiple types of supplier risk" warrant introspective thinking and analysis. After all, the real danger of supply risk often lies below the surface of what we look at and consider today. And while we might not prevent all forms of risk from damaging our business from Black Swan events, we can certainly be better prepared in the majority of cases.

Jim believes that manufacturers that "create robust strategies and processes for managing supplier information, monitoring overall financial and operational stability, and establishing early-warning systems for alerts when conditions or parameters change will find that the gap on risk exposure can be closed -- for better performance today and in the long-run". But I would not just limit this statement to manufacturers. Nor would I limit the role of just looking at risk as a monitoring process to take place once a relationship is established.

Having now spent close to a decade looking at supply risk in detail and seeing how truly best practice companies manage it, I've come to the conclusion that reducing the impact of supplier failures is as much about changing one's overall philosophy and mindset as it is making targeted investments in specific areas, content or software tools. Risk management considerations must permeate our thinking in everything from up-front supplier selection to ongoing relationship management and even the payment terms and flexibility we chose to offer different trading partners. Granted, we should never consider supply risk in a vacuum -- just as we would never consider unit cost in a vacuum either. But it should be one of the first things we think about in managing all of our external partner relationships.

Jason Busch

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