Why managing Supplier Risk is so important.

As COVID-19 begins to impact our daily lives in the UK, we see in our daily lives how brittle supply chains that we all rely on are. Rather than focusing on the Coronavirus here (we encourage you to follow advice from official sources), we thought it is useful at this time to consider how organisations can improve their management of supplier risk with a look at some of the fundamentals that need to be in place.

Start with the basics:

Know who your suppliers are and how much you spend with them.

If your supplier data is riddled with duplicate records or inaccurate records then you will be in the dark to the risks that may exist. Why do we say that? If you don’t know what you are spending with a supplier then you cannot quantify the risk. If you don’t have accurate data, you will struggle to understand whether you have spend with some suppliers that share the same Parent or Ultimate Parent Company.

This seems the most obvious and the simplest, yet we continue to see that the majority of organisations do not maintain accurate supplier master data.

Understand your risks. Each organisation will have a different risk profile, depending on their industry and geographical factors. A few things that you should be considering:

a.     Environmental Risks – This would include natural disasters. We may think these are rare and unpredictable events, but in just the first seven months of 2017 the U.S. experienced 49 natural disasters. While you cannot avoid these risks, it’s possible to plan for such instances by having alternative strategies in place.

b.     Facility Risk – No matter how much you invest in maintenance, breakdowns and events such as fires can happen unexpectedly. Do you and your suppliers have plans in place to respond if a key location in your supply chain became unavailable?

c.      Cyber Risks – In just one year it is estimated that the cost of cyber hacking totaled $3 trillion! Cyber hacking will impact all companies in a supply chain, so while your own organisation may have protection in place, do all the companies that you depend upon?

Segment your suppliers. To manage the risks you need to separate your suppliers in to different groups. Each group will share similar properties, levels of risk and approaches to managing the risks. This brings clarity to the process and helps to govern future activity.