‘New Year’s’ resolutions No. 2:Supply Risk Management

Continuing our slightly anomalous 'New Year's Resoultion' series, today's suggestion is to stand back and take a look at where 'supply risk' is most critical in your organisation , category, or project.

Analysis around risk in the supply chain is often focused very much around the possibility of suppliers going out of business; and indeed this can be a serious issue as many examples show.  But the potential for trouble runs far wider than that, and analysis should consider risks such as:

  • supply disruption or even termination;
  • operational risk; suppliers causing or contributing to operational failure that has consequences for the organisation;
  • commercial risk: vulnerability to sudden price movements, either market driven or  through suppliers exerting power, or even through being locked into long term contracts which are no longer commercially attractive;
  • reputational risk:  issues now ranging from use of  'blood minerals' to employment of children or other exploitation down the supply chain;
  • and fraud / corruption risk: many faceted, and we've touched on examples such as Apple recently.

And one thing the last few months has shown us is that events never fail to surprise.  Who would have predicted that a volcano in Iceland would cause massive global supply chain disruption?  Or McDonald's having a problem with Cadmium in their give-away promotional glasses? And I remember a few years ago, when technology was everything and raw materials were boring and cheap.  Now we see China looking to corner the global market in critical metals, and the price of agricultural products soaring in a manner that few predicted.

So thinking creatively is key to assessing risk it seems to me.  Risks should then be assessed in terms of the probability; how likely is it to happen; and the impact; how badly will we be affected if it does happen.  Combining the two gives an overall criticality factor (but don't be fooled; the volcano was very low probability, but remember that even low probabilities do happen occasionally!)  Then mitigation strategies can be developed, which might focus on reducing the probability and / or impact.

We would also suggest that organisations may want to consider looking carefully at the supplier information and risk management solutions and support that is available in the market.  A cursory D&B report occasionally is not enough (I declare an interest; I was D&B's European Procurement Director in the early 90s, and it amazed me then how few procurement people used the more advanced information services we could provide.  But there are of course competitors who are well worth considering as well).  Other organisations such as Achilles have developed sophisticated information services that go well beyond financial information.

And finally, if you're interested in supply risk, here's a link to a whole host of interesting Spend Matters pieces.

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