4 Tips for Better Supplier Risk Management

The Resilient Enterprise | The riskmethods Blog
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June 18, 2019

Supplier risk management is just one element of the larger picture of supply chain risk management (which includes monitoring not just suppliers, but also geographical locations, supply paths and more)—but it’s a very crucial element.

by Andrew Sullivan 

Based on my experience working with customers who are making it a top priority to mitigate supplier risk, let me break down a few top tips that will help any company make their supply chain, and therefore their business, more resilient.

 

#1: Find out where your suppliers’ manufacturing facilities are located so that you can monitor for risk affecting relevant regions.

One of the lessons I’ve learned from working with customers is that a lot of companies don’t know where their suppliers are actually located. Often, they’re able to tell you where their suppliers’ headquarters are (in other words, where they’re sending the money)—but when you ask them where the supplier is actually manufacturing their supplies, it’s a completely different story. They just don’t know. And what if the supplier has multiple manufacturing locations? Then they really don’t know.

But this is such a key element of supplier risk management, and therefore of supply chain risk management! How can you make sure everything is going smoothly if you don’t know where most of your suppliers are actually located? Spoiler: You can’t. If you want to improve the reliability of your supply chain, it’s time to take this key step: Find out where all your suppliers’ manufacturing facilities are located, and make sure you’re aware if an event might impact operations in those areas (for example, a natural disaster).

#2: Establish a single source of truth for supplier risk information.

Most companies rely on multiple systems to store all the data they need to keep their business running. But when it comes to keeping your supply chain resilient, you have to make sure all of those different pieces of information are brought together in a single source of truth. Got internal financial metrics in one system, internal quality metrics in another system and want to add real-time monitoring for the full range of supply chain risk? That’s great. You should. But if all this data lives in different places, it’s not going to be very helpful. You need a central place to bring this information together and consolidate it into a single, at-a-glance understanding of your risk exposure.

#3: Compare the risk scores of your current suppliers with prospective suppliers.

If you know how your current suppliers are trending with respect to risk, you’re well on your way to resilience. But there’s more you can do, and this is my next piece of advice: Compare prospective suppliers to current suppliers.

This is a crucial way to stay on top of weak links. Are you seeing that a key supplier of yours is trending poorly in their risk scores, while a prospective alternative supplier is doing well? Maybe it’s time to consider a switch. By having this information at your fingertips, you’re able to spot vulnerabilities before they actually affect you, and make adjustments to fix those vulnerabilities.

Learn more about risk-aware vetting of prospective suppliers here. 

#4: Monitor your risk exposure by business units, categories and product groups.

So you’ve got a single source of truth for supplier risk that allows you to monitor for all kinds of risk, and even compare prospective and current suppliers. You’re off to a great start!

The next thing you need to do? Start to categorize your suppliers so that you can understand what particular areas of the business are going to be affected by potential risk events. Specifically, I recommend focusing on filters for three pieces of supplier metadata: business units, categories and product groups. Say, for example, you’re a company that manufactures cars—you might want to categorize your suppliers so you can filter down and understand your risk exposure for individual car models, the major product categories that go into those models (engines, wheels, seats) and then the product groups that make up each of those categories (4-cylinder engines, 6-cylinder engines, etc.).

I’ve learned a lot about supply chain resilience in my time at riskmethods, and I love helping companies make sure their supply chain isn’t the weakest link in their business. Make sure you drop us a line if we can help you! 

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