Supply Risk Management: Investing in Today and Tomorrow
“The best time to plant a tree was twenty years ago and the second-best time is now.” – Proverb
The traditional proverb above provides sound advice for modern supply chain managers. Risk is a constantly changing factor that we need to monitor and be prepared to mitigate should it come to fruition. The very best way to manage risk, just as with planting a tree, is to have taken steps in the past to prevent or minimize its impact in the future. If those steps were not taken, or if they could not be taken because the risk was unforeseeable, then the best time to act is today.
Risk is ever present in today’s complex business environment. Supply chains, while often visually represented as solidly connected links of steel, are actually more like tenuous webs of demand and intent. For many companies, the supply chain is where they are most susceptible to risk – beyond their direct line of sight and in another organization’s control. It takes very little to disrupt an operation – especially one that is humming along in alignment with high-efficiency principles such as Lean Six Sigma or Just in Time inventory management strategies.
When you find yourself in urgent need of a supplier, there are many places to start:
Colleagues: The fastest way to find a supplier may be by asking someone who is not only likely to have the information you seek, but who also understands why you are asking for it. It's doubtful that your colleagues will provide you with salesy or promotional information. On the other hand, explaining precisely what your company needs to external parties may raise questions about confidentiality, especially if the requirement is unique or key to your product’s differentiation.
Re-evaluate incumbents: Most companies work with thousands of suppliers and keeping track of the full capabilities of each one can be a challenge. A supplier for one category of product may also be able to step in and provide related products and services without missing a beat because they are already familiar with the company and set up in purchasing/ordering systems.
Make v. Buy: Most companies have vertically disintegrated themselves to the point that they need the production of their suppliers in order to stay in business. And yet, in challenging circumstances, the option remains to bring the manufacturing of a product or the delivery of a service back in house. Likely contributing factors to a ‘make’ decision include how prolonged the disruption is expected to be, how time consuming or costly it will be to bring the effort in house, and how different from the company’s central existing operation it is.
Altered design: The hardest suppliers to replace are the ones that provide a customized product – often to match the specifications they have been provided. Whenever possible, specifications should be standardized. This not only reduces the risk of being able to secure the product in question, it also reduces its cost.
Source a new supplier: In some cases, there is no alternative to starting over and finding a new supplier. When that is the case, take every opportunity to shortcut the sourcing process by consulting a trusted source known to contain the information required to motivate a decision.
Since you have time to read this article, you are likely not facing an imminent supply disruption, which means you have preventative measures at your disposal as well. Given the number of supplier evaluation strategies and tactics to consider, putting a mitigation plan in place early (translation: now) is the most strategic option available.
What should you do before a supply chain disruption occurs?
- Identify company risks, including legal and financial concerns. Keep in mind that each supplier also has a supply chain they are reliant upon. Depending on the level of criticality associated with each supplier, it is wise to evaluate the risk of second and third tier suppliers as well as the first. Not only will this uncover the potential for new risks in the supply chain, it will also increase procurement’s visibility into areas where they believe they have diversified, but have not, because supplier supply chains are common beyond the first tier.
- Qualify potential alternatives. Knowing who the best alternative suppliers are for a given product or service does not require procurement to put a contract in place – at least not before the concern about potential risk becomes a reality. Once it is known that additional suppliers may be needed, the work should begin to discover who they are and to record that information for future reference. If a disruption occurs, this advance work will be priceless.
- Make and then document the plan: Putting a risk response plan in place is important, but it needs to transcend staffing and leadership changes. If additional suppliers or sources have been documented, their information should be saved in a centralized location with the same information for other moderate to high risk categories. This information should never live in email or on a laptop. It must be accessible at all times and by all members of the team.
If we return to our proverb for a moment after considering all of the above options for responding to current risk and preventing future disruptions, we can see that it has one more lesson to teach us. If we do not act today – putting time and effort into proactive supplier discovery – we will find ourselves in the future, regretting our choice not to act now as much we regret not planting that tree 20 years ago.
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Evaluate Risk by ordering a Supplier Evaluation Risk Report - available in single supplier or comparison versions designed for procurement professionals at organizations that typically engage in strategic, long-term purchasing relationships with suppliers who want to avoid disruption in their supply chain. Reports make it more feasible for buyers to assess risk earlier in the supplier evaluation/pre-qualification process, saving time and improving the quality of potential partners added to their shortlist for further vetting.
Thomas Publishing Co. LLC provides solutions to connect B2B buyers with industrial suppliers. These include Thomasnet.com, industry’s largest Product Sourcing and Supplier Selection platform with information on over 500,000 North American suppliers and more than 6 million products. The company also provides award-winning full-service marketing services, digital product data syndication solutions, and has built more than 5,000 websites for industrial manufacturers and distributors. Thomas delivers original content to help marketers and supply chain professionals make better decisions, through leading titles including Inbound Logistics, Industrial Equipment News (IEN), and Thomas Industry News.