by Vishal Patel
Managing Supply Risk has always been part of a buyer’s job, but it is becoming more and more important today. Indeed, many trends have increased the chances of Supply Risk occurring, such as Cost Reduction focus, Supplier consolidation, Reliance on the Internet, Just-in-time delivery practices, Centralization, and Outsourcing.
So with an ever-growing list of problems that will keep you up at night, how can you break this down and address these risks? You’re already familiar with supply base segmentation, which is defined by ISM as, “The strategic analysis of each supplier to determine the extent to which the supplier contributes to the core competence and competitive advantage of the buying organization.”
Time and resources are limited, so you typically segment the supply base to pinpoint specific suppliers with whom you wish to focus time and resources. Segmentation for risk is just an extension of normal supply base segmentation, only you are looking specifically for suppliers who pose a potential risk to your firm or who are strategically important and you want to keep an eye on them. These are the suppliers of interest for risk, those on whom you want to focus for risk management. Ordinarily supplier segmentation begins by looking at those suppliers who represent the top 10-20% of spend. But don’t stop there. Just because you don’t spend a lot of money with a supplier doesn’t mean that they can’t bring down your supply chain with a risk incident. Identifying these single points of failure in terms of risk is important. Involve end users, as they can identify suppliers critical to risk management. As a result of SCRM segmentation, you can list of each supply chain risk categorized by criticality and prioritized by importance to address. Then you can identify the suppliers whom you want to watch carefully for risk.
Here are a few examples of the types of suppliers to consider during supply risk segmentation:
Sole Source – Single Source – Financial Health
Suppliers Representing top 10% of Spend
Adverse Impact on end users
End user complaints
Suppliers having Quality escapes
Dangerous Substances – Hazardous Chemicals
Known issues – Bad publicity
Country with poor enforcement of EHS
Identified as Ethical Risk
Ethical issues have already been identified
Known or suspended violations of CSR (Corporate Social Responsibility) standards
Compliance with Local and international Law
Political factors and Risk
If you want to learn more about Supply Base Segmentation or just other ways of Managing Risk, please Download our Free Guide on Supplier Risk
Vishal has spent the last 15 years in various roles within the Procurement and Supply Chain technology market. As an industry analyst, he researched and advised organizations in various industries on best and innovative practices, digitization and optimization. He brings a thorough understanding of market trends and digital technologies that can help enterprises be more effective with their Procurement and Supply Chain strategies. He works to ensure that organizations are empowered with technology platforms that enable flexibility, innovation, and agility.
You can connect with Vishal on Linkedin