Jim Lawton, Sr. VP & General Manager of D&B Supply Management Solutions, who guest posted on winning the battle on risk: information and technology here on Sourcing Innovation recently penned a great article for Industry Week on understanding risk and avoiding supply chain disruption. According to Jim, avoiding supply chain disruption basically boils down to three steps:
- get the data,
- go beyond the finances, and
- proactively manage the supplier base.
The first challenge of supplier risk management is compiling all supplier information into one centralized location. Since supplier information in most companies exists across dozens — if not hundreds — of systems, this is never an easy task. However, once the data is centralized, it can be used to drive predictive indicators that give insight into supplier viability as far out as 12 months in the future. Furthermore, manufacturers can determine the criticality of each supplier (and determine which suppliers need to be monitored most closely) by asking the following questions:
- What need does the supplier fill?
- How essential is the supplier to overall supply chain operations?
- How does the supplier fit into the corporate plan for supplier diversity and sustainability?
- What would happen if we lost the supplier?
Then — because risks come in many shapes, including operational, managerial, and geographic — manufacturers can go beyond the financial assessment and look at other factors that could be a cause for concern, which might include:
- changes in the supplier’s management team
- quality issues
- noticeable lags in inquiry response time
- EPA violations
- OSHA incidents
- OFAC violations
Finally, they can actively manage the supplier base to minimize risk, starting with forward-looking supplier scorecards that are designed to detect risks before they materialize and help the manufacturer work with the supplier to improve their operations and prevent disruptions.