Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I’ll be reviewing a whitepaper entitled “Best Practices for Supplier Risk Management: Measure, Monitor and Mitigate” from Aravo and SDCExec.com.With the recent economic crisis and natural disasters, supplier risk management should be a topic of concern for all procurement professionals and the Executive Summary of this whitepaper emphasizes the same. A frightening statistic quoted in the whitepaper “…the American Bankruptcy Institute is estimating a total of 1 to 1.2 million bankruptcy filings in 2008, a 30% increase from 2007. Although bankruptcy is a lagging indicator, with the continuing global economic crisis, this trend is likely to accelerate in the near future,” drives the point home that if your company has not yet developed a supplier risk management program, you should consider doing so immediately.
So, how does a company do a better job with supplier risk management? Well, the whitepaper encourages the reader to return to the basics- Measure, Monitor and Mitigate. In the measurement phase, the whitepaper encourages buyers to collect important data for each supplier, ensuring that it is “accurate, validated and accessible across the company.” Key points of data to collect include supplier financials, percent of on-time delivery, quality metrics, etc.
The whitepaper suggests that in the monitoring phase, buyers work cross-functionally to decide which categories of risk are most important. (While a list of 10 common risk categories is included in the whitepaper, don’t be limited by these suggestions.) Once the most important risk categories have been established, buyers will continually monitor and update the metrics for each supplier.
With mitigation, a company is encouraged to have a contingency plan established for when an incumbent supplier’s risk becomes too high, which may require indentifying alternate suppliers. If a supplier is identified to be at high risk, the company should initiate the contingency plan to “ensure restoration of core business processes and services in a timely manner.”
I found the topic of this whitepaper to be very timely and its suggestions practical. Think of supplier risk management like the instrument panel in a car. The car is programmed to monitor the key requirements for operation: fuel levels, oil temperature, etc. If something fails in these areas, a notification will occur on the dashboard prior to the car breaking down entirely. If you ignored the warning signs, you may find yourself needing a new car. In your company, the failure of even one supplier could have disastrous consequences.
Now, each company will approach a supplier risk management program differently, but this whitepaper will provide some key points that you’ll want to consider. If you’d like to check it out for yourself, you can download your own copy from SDCExec.com.
To your career,
Megan Tyrseck, SPSM
Senior Marketing & External Relations Coordinator
Next Level Purchasing, Inc.
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