Supply Risk Management: Assessing Supply Risk Impact

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

supply risk assessment process

I'll now explore Step 2: Assess Supply Risk Impact (see our previous post for how to assess supply risk probability).

The other side of risk is the impact failures have once they occur. A useful method for considering supply risk impact is to use an FMEA (Failure Mode and Effects Analysis) approach, in which the team asks, “If something were to go wrong (cost, quality, availability, etc.), why would that have happened...?” The table below lays out five key elements of risk impact.

rating supply risk impact

Curious? Drop Sydney a line ( and we’ll send you out a copy of this dusty old analysis! Some topics are timeless. And supply risk is one of them.

See additional Spend Matters research coverage below:

Sustainability in Procurement: Prevent the Next “Bangladesh Factory Fire” From Happening Again

Planning a Long-Term Response to the Bangladesh Factory Fire

Sustainability in Procurement: Why Do Sweatshop Scandals Occur?

How Do You Handle Underperforming Suppliers?

Supplier Management Market Landscape: Detailed Slide Download!

Supplier Management Data: 90+ Fields Finance and A/P Want Info On

Supplier Management Data Collection: 75+ Company Level Fields

Of Supplier Management…and Horsemeat

Beyond Bird Flu 2.0 – Inoculate Your Supply Base Against Supply Chain Risk

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