SUPPLY CHAIN RISK MANAGEMENT BLOG

Managing Supply Chain Risks Successfully – Part1: Risk Prevention

Jul 1, 2014    Kai Busse

 


riskmethods welcomes a guest post from Kai Busse, expert for the procurement area and founder of Pexin Consult.

No company is today able to successfully survive in the market in the long term if the risks that the company faces are not successfully managed. I would like to present the basics here for everyone who would like to re-address the topic of supply chain risk management or introduce some structure into their risk prevention.

The principal components of risk management in general and especially of supply chain risk management are integration into the business concept, structured procurement and processing of information, and an option for fast, target-oriented response. Even the most well-developed risk prevention strategy becomes pointless if it does not take account of the company’s risk requirements. Risks to the company are not detected if supply chain risks are not checked on an on-going basis. Risks that have been detected may under some circumstances result in loss that can jeopardize the existence of the company if swift and decisive counteraction is not taken.

To ensure that your company plays a forward-looking and active role in risk management, rather than a reactive role, essentially requires three steps on your part:

  • Step 1: Development of a risk prevention strategy
  • Step 2: Setting up of risk monitoring
  • Step 3: Implementation of risk management

When it comes to supplier relationships, Procurement is the responsible entity and consequently assumes the central role in the development of prevention strategies. The first part of my blog deals with taking the first step mentioned above.

Step 1: Risk prevention strategies are oriented towards the corporate strategy

You have most likely already developed a procurement strategy that also provides protection against supply chain-related risks. Based on this, you already have pre-qualification criteria for your suppliers and are assessing established supplier relationships. Perfect. That means you have already established the basics for developing your risk prevention strategy.

If your company is implementing a strategy of quality leadership, your suppliers must also offer top performance in terms of product quality, service, service life, design and image. A high level of service and delivery quality, competence and courtesy also count as core elements.

Then again, if your company identifies itself with cost leadership, the requirements for the supply chain change entirely. Economies of scale related to large production quantities and strict cost control must also be possible through performance on the part of suppliers. Where your suppliers do not work efficiently, your corporate development is also at risk.

If your company has successfully established itself as a niche provider, the supplier base must be able to support the uniqueness of your market positioning, too.

image

Irrespective of the nature of your corporate strategy, you cannot develop a risk prevention strategy for your supply chains in Procurement behind closed doors.  This strategy is a core component of your procurement strategy. Agreement – and better still, joint development – with Production, Development, Logistics, Compliance and Management is essential to protect positive corporate development against supply chain risks. A common approach ensures the necessary acceptance and support in your company. This acceptance is absolutely crucial for receiving future company-internal information for your risk assessment and for active support from other departments in taking the necessary steps for risk prevention. In addition, you ensure that existing strategies of other departments are not undermined.

It is important that you clearly delimit the different areas in your risk prevention strategy, i.e. you need to determine what should be subject to risk monitoring and what not. Essentially, the risk prevention strategy answers the following questions:

  • What are the objectives of your strategy?
  • What risk groups (risks related to supply, corporate social responsibility, finance, products, etc.) does the strategy apply to?
  • What product and material groups are affected?
  • Which tiers in the supply chain should be subject to risk-based preventive controls (TIER 1 to TIER n)?
  • What processes and measures are effective for risk recognition and prevention? (Step 2: Setting up risk monitoring)

Once the risk groups have been defined, determine the risk indicators that form the basis for risk monitoring in each case. I will be dealing with setting up risk monitoring in the next contribution of my blog series.

Read more "Managing Supply Chain Risks Successfully":
Part 2: Establishing a Risk Monitoring
Part 3: Implementation of Risk Management

image

riskmethods welcomes a guest post from Kai Busse, expert for the procurement area and founder of Pexin Consult.

No company is today able to successfully survive in the market in the long term if the risks that the company faces are not successfully managed. I would like to present the basics here for everyone who would like to re-address the topic of supply chain risk management or introduce some structure into their risk prevention.

The principal components of risk management in general and especially of supply chain risk management are integration into the business concept, structured procurement and processing of information, and an option for fast, target-oriented response. Even the most well-developed risk prevention strategy becomes pointless if it does not take account of the company’s risk requirements. Risks to the company are not detected if supply chain risks are not checked on an on-going basis. Risks that have been detected may under some circumstances result in loss that can jeopardize the existence of the company if swift and decisive counteraction is not taken.

To ensure that your company plays a forward-looking and active role in risk management, rather than a reactive role, essentially requires three steps on your part:

  • Step 1: Development of a risk prevention strategy
  • Step 2: Setting up of risk monitoring
  • Step 3: Implementation of risk management

When it comes to supplier relationships, Procurement is the responsible entity and consequently assumes the central role in the development of prevention strategies. The first part of my blog deals with taking the first step mentioned above.

Step 1: Risk prevention strategies are oriented towards the corporate strategy

You have most likely already developed a procurement strategy that also provides protection against supply chain-related risks. Based on this, you already have pre-qualification criteria for your suppliers and are assessing established supplier relationships. Perfect. That means you have already established the basics for developing your risk prevention strategy.

If your company is implementing a strategy of quality leadership, your suppliers must also offer top performance in terms of product quality, service, service life, design and image. A high level of service and delivery quality, competence and courtesy also count as core elements.

Then again, if your company identifies itself with cost leadership, the requirements for the supply chain change entirely. Economies of scale related to large production quantities and strict cost control must also be possible through performance on the part of suppliers. Where your suppliers do not work efficiently, your corporate development is also at risk.

If your company has successfully established itself as a niche provider, the supplier base must be able to support the uniqueness of your market positioning, too.

image

Irrespective of the nature of your corporate strategy, you cannot develop a risk prevention strategy for your supply chains in Procurement behind closed doors.  This strategy is a core component of your procurement strategy. Agreement – and better still, joint development – with Production, Development, Logistics, Compliance and Management is essential to protect positive corporate development against supply chain risks. A common approach ensures the necessary acceptance and support in your company. This acceptance is absolutely crucial for receiving future company-internal information for your risk assessment and for active support from other departments in taking the necessary steps for risk prevention. In addition, you ensure that existing strategies of other departments are not undermined.

It is important that you clearly delimit the different areas in your risk prevention strategy, i.e. you need to determine what should be subject to risk monitoring and what not. Essentially, the risk prevention strategy answers the following questions:

  • What are the objectives of your strategy?
  • What risk groups (risks related to supply, corporate social responsibility, finance, products, etc.) does the strategy apply to?
  • What product and material groups are affected?
  • Which tiers in the supply chain should be subject to risk-based preventive controls (TIER 1 to TIER n)?
  • What processes and measures are effective for risk recognition and prevention? (Step 2: Setting up risk monitoring)

Once the risk groups have been defined, determine the risk indicators that form the basis for risk monitoring in each case. I will be dealing with setting up risk monitoring in the next contribution of my blog series.

Read more "Managing Supply Chain Risks Successfully":
Part 2: Establishing a Risk Monitoring
Part 3: Implementation of Risk Management

 


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