Sheesh. Everywhere I turn these days, I hear “supply risk.”
Magazine articles. Conferences. Webinars. Blog posts. Conversations. Twitter. Everywhere.
As if supply risk is something new (which it is not). I do think the rough economic times we’ve been in has a lot to do with that (which it should).
But what concerns me about the discussions about supply risk, particularly those involving “experts” in the field, is that a lot of them are focused on risks that aren’t predictable, haven’t been common, and are of low-probability. You know, the next tsunami. The next lead paint scare. The next terrorist attack.
And it is OK to think about those things. I’ve always advocated having contingency plans.
My concern is that procurement professionals will spend so much time worrying about these types of risks (which, don’t get me wrong, shouldn’t be ignored) that they’ll forget about the most common type of supply risk that gives heartburn to procurement professionals day-in and day-out. This supply risk causes daily late deliveries, quality defects, and supply chain breakdowns.
What is this common supply risk?
Poorly managed suppliers.
Yep, if you are doing business with a poorly managed company, your risk of supply disruption is high constantly, not just when a natural disaster strikes. So, it is important to mitigate this supply risk with an evaluation of how well-managed your suppliers are.
How do you know when a supplier is well-managed?
As I am writing this, I can immediately think of a number of characteristics of well-managed businesses. Here are a few (certainly, this list is not exhaustive):
- A culture of continuous improvement. A well-managed business will have a culture of continuous improvement, evidenced by several goals that aim to improve performance over the previous year(s). For example, a well-managed business may look to grow its sales by x% compared to last year, reduce returns by 50% from the previous year, improve on-time delivery to x% from y%, etc.
- Measurements. A well-managed business will measure its performance in many ways. From things like units sold to productivity of every machine operator, a well-managed business will know how well it is performing (and its employees will know how well they are performing, too).
- Stability in employment. If a company has to replace half of its workforce every year, something is clearly wrong. A company who has constant turnover cannot usually be counted on for consistent performance as a supplier. A well-managed business hires people who are a good match and works to retain them.
- Profitable financial performance. This is self-explanatory.
- Employee engagement. A well-managed business will have happy workers and those that know why doing a good job is important for the business’ customers. If the workers do not know what is important to please a customer – even if management does – the chances of you being pleased are slim.
- A good reputation. A well-managed business will have no shortage of satisfied customers and will have a good public reputation. Any business is subject to criticism and the occasional mess-up. But a well-managed business will have more positive things said about it than negative.
So there are a few things to think about. Yes, they may seem boneheadedly simple.
But, you know what? In my experience and observations, the most supply disruptions have occurred due to companies doing business with poorly managed businesses than the armageddon-type occurrences.
As we teach in our online course “14 Purchasing Best Practices,” part of supply risk management is identifying risks, assigning a probability of occurrence to those risks, and establishing priorities for mitigating those risks. Make sure “supplier is poorly managed” is one of those risks and that it is assigned a higher probability of occurence than the moon crashing into a supplier’s facility.
Supply risk is real. Some risks are “realer” than others.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At