3 Best Practices in Supply Risk Management That You Are Likely Overlooking

SI has written about risk management and best practices quite a lot in the past, and a lot has been written on the subject, but when it comes to a successful risk management program, there are a few key elements that cannot be overlooked or the success of the entire program can be compromised in an instant.

Three of these core elements are very nicely summarized in a recent piece by the maverick that he published on Spend Matters last month in Part 2 of Supply Risk Management 2015: Best Practices. And while the doctor has seen each of these issues addressed to various levels of competency separately, he’s never seen them addressed so succinctly in unison, and that’s why he’s pointing out this particular piece. With the exception of the 2×2 best practice, which is really not that critical if you frame and approach supply risk management correctly (but that’s a point for future discussion), the piece is superbly written.

This post will briefly discuss the three elements, but the doctor strongly encourages you to download the full piece and read it in its entirety. These lessons could just save your supply chain from a major disruption.

Supply Risk Management is an Embedded Process

Risk is continuous, not a point-based event that can be addressed with a one-off program at various points along the supply chain. Natural disasters cannot be predicted, strikes can happen with very little warning, and equipment can break down for any number of reasons. Monitoring must be continuous — and this only happens if risk monitoring, mitigation, and management is embedded into all supply chain processes. Not sure how to do this? The paper has some tips to get you started.

Risk Includes Variation and Volatility

Risk is not binary, not restricted to complex categories or supply chains, and not an-all-or-nothing event. An extra 1% defect rate presents a major risk if quality assurance and pre-delivery testing is not stepped up. Bad weather that destroyed 20% of expected crop yield is a major risk if the organization was counting on a full yield to meet demand. The products are still delivered and a crop is still harvested, but it’s a disruption all the same.

Risk Scoring Must Show Business Impact

One of the biggest mistakes that the average Procurement organization makes, if not the biggest, is evaluating the impact of a risk against purchasing, and not the business as a whole. A low dollar spend could be critical if the bus cannot roll off the lot without that Grade 8 bolt. An impact on an unmanaged category, not critical to Procurement, could be devastating to Marketing. And so on. The needs of the business must come before the needs of Procurement.

For more details on these best practices and tips to get you started, check out the maverick‘s second paper on Supply Risk Management 2015: Best Practices. It will be worth your while.