Daily Archives: August 9, 2007

Purchasing’s Best Practices in Risk Management

Although I’m not always impressed with Purchasing’s articles on strategic sourcing and risk management these days, their recent article on Best practices in risk management wasn’t too bad, as pointed out by Tim Minahan in his posts Supply Risk: Purchasing’s Take and Supply Risk Profit Equation. In it, they outlined three simple strategies that can help reduce your supply risk.

  • Leverage Relationships with Suppliers to eliminate risk and gain protection in a crisis.
    Make sure your suppliers will provide you with an acceptable substitute or give you preference when demand exceeds supply.
  • Study the risks you could face, prioritize them and decide how much value they endanger.
    That tells you how much time, effort, and cost to put into the development and implementation of mitigation strategies.
  • Admit that in some cases it’s better to pay more to ensure continuity of supply.
    If the absence of single part could shut down your entire production line, it’s important to make sure that doesn’t happen.

The article also overviewed the most common risks that lead to supply chain disruptions:

  1. part shortages
  2. ramp/rollout problems
  3. order changes by customers
  4. production problems
  5. development problems
  6. quality problems

The fact of the matter is that, as devastating as:

  • natural disasters,
  • infectious disease pandemics,
  • regulatory pressures,
  • supplier insolvency, and
  • geo-political unrest, coos, and civil wars

are, they are not everyday occurrences.