The Global Supply Chain Council recently published an article on managing supplier risks in a downturn that had a good checklist for global companies looking to improve their supply chain risk management. It’s definitely worth an expanded review.
As the author clearly points out, focusing on the processes that drive risk rather than reacting to specific events will allow supply managers to be more proactive. Risk mitigation should be incorporated into the sourcing strategy and qualification along with the traditional Price, Quality, Delivery, and Design Selection Criteria. Regular monitoring, and frequently a second source strategy, is necessary — but this should take a more insightful form than traditional third-party plant audits and quality checks. While quality checks are important, they are not a means to manage risk — they occur too late (in the process).
Select the Right Suppliers
- Do Your Due Diligence
Be sure the supplier is financially sound and operationally equipped to meet your needs.
- Validate The Data You’re Basing Your Decision On
Don’t rely on third party data sources if the supplier is going to be providing a critical part of service — validate the data on your own.
- Understand Their Customer Portfolio
Who else do they serve? How likely are they to understand your needs? How important will you be? If you would compose a significant percentage of their business, that could specify financial trouble. If your business would be a rounding error, it would be unrealistic to expect great customer service and first fulfillment if supply is limited.
- Understand Their Supplier Management Process
It’s not enough that they comply with your supplier management processes … if they don’t have any of their own, you have no way of knowing whether or not their suppliers are cost efficient, reliable, and socially responsible.
Improve Supplier Monitoring and Measurements
- Utilize a Robust Risk-Based Monitoring Framework
Make sure the framework, or scorecard, addresses regular reporting, financial and operational data collection, relevant information, and on-site reviews.
- Analyze Risk Data Regularly
A well designed monitoring framework / scorecard is one of your best early warning systems for a potential problem.
- Focus on Suppliers Near the Limits
Don’t just focus on suppliers outside the bounds of your risk tolerances … focus on those near the limits as well. This could represent an emerging problem or a malicious attempt to manipulate the system (with slightly skewed false data) to hide a serious problem.
Develop Supplier Development and Contingency Plans
- Identify Suppliers Who Need Development
Your efforts should be focused on critical suppliers who most need it.
- Perform On-Site Reviews
Self reporting is not sufficient. Do your suppliers understand the framework and metrics? Are they being completely honest with themselves, and with you? Do they even understand how well they could, and should, be doing?
- Develop Performance Initiatives
Tailor them to the specific needs of the supplier, as determined by your on-site reviews.
- Provide the Appropriate Support
They will need to be helped and guided through the process.
- Identify Alternative Supply Sources
Just in case.
Develop a Supplier Exit Strategy
- Assemble a Cross-Functional Team
This team will help you identify what the requirements are for a successful supplier.
- Analyze Supply Alternatives
Do a market assessment and identify likely candidates.
- Determine the Appropriate Course of Action
Stick with the supplier? Or move on?
Move on? Use your intelligence to put together the right RFX and begin the supplier selection process anew.