Balance Supplier Risk Versus Reward

7 steps to gaining the greatest total value from your supplier relationships while minimizing risks


Monthly

Supplier monthly report is developed and reviewed between supplier first-, second- and third-level management and company’s first- and second-level management, and Procurement

Any escalated tactical issues are resolved at this level

Majority of strategic-related issues are identified and resolved at this level

Quarterly

Quarterly monthly report is developed and reviewed with supplier senior management and company’s senior management

Any escalated strategic issues are resolved at this level

For non-strategic suppliers and categories, less reporting and governance may be appropriate.

“Category Packs”

A “category pack” is a collection of external market research about a particular industry or sub-sector, including supply and pricing trends, competition, risks and key suppliers (see Figure 3 above). Developing and regularly updating a category pack provides insight into new information and trends within the marketplace. This can include emerging products/services, price changes and new risks. Because risks can arise from various causes — including inflation, government regulation, supplier consolidation, supplier bankruptcy, supplier’s supply chain issues, and supplier fraud or quality issues — gaining insight sooner to new information and trends enables companies to shorten their reaction time to new risks.

Supplier Six Sigma Program

Another approach that can help reduce risk and drive significant value from strategic suppliers is implementing a supplier Six Sigma program. Six Sigma is a methodology that uses facts and statistics to measure, analyze and improve processes and to reduce variability in outcome. Using this methodology can help reduce supplier costs, improve supplier quality and reduce supplier risks.

The first step when embarking on a Six Sigma program is to identify a few key strategic categories and existing strategic suppliers on which to focus. Since this program requires investment of time and resources for both your company and the suppliers, one should consider focusing on existing strategic suppliers that can help you achieve sizable benefits. In addition, it makes sense to identify existing suppliers that have instituted companywide Six Sigma programs, since their Six Sigma knowledge, experience and tools already in place typically result in a shorter implementation time and higher probability of success.

The following are some additional key considerations when implementing a supplier Six Sigma program:

Think big, start small, scale fast.

Obtain management buy-in for the program.

Use experienced supplier Six Sigma resources (e.g., Master Black Belts), either internal or external consultants, to help plan and implement your program.

Develop a stakeholder assessment and communications plan for both internal and external (suppliers) constituencies.

Partner with your suppliers to help identify what criteria and which Six Sigma projects to consider.

Document and agree upon key milestones for project reviews.

A Competitive Advantage

Today a constantly fluctuating demand and supply market demands that companies have an agile and flexible supply chain, and one that derives more value from suppliers while allowing for proactive risk management. Those companies that unlock the value in their supply chains can save money, enhance quality, reduce risk, improve revenue and gain efficiencies. Realizing these significant benefits across the organization can be a critical, competitive advantage.

KPMG Disclaimer: The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG LLP. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.

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