Checklist: Four Steps to Mitigating Supplier Risk and Protect Your Supply Chain

These four steps ensure you cover every aspect of risk through the entire supplier lifecycle



Repeat the process annually to maintain up-to-date information.

Managing risk is not a one-time event. Managing supplier information shouldn't be either. Implementing a process where established suppliers will update their information annually will help ensure that you are working with the most current information.

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Step 2 — Monitor

Identify the suppliers that have the most impact on your business.

Not all suppliers are of equal value in your supply chain. Stratify them into categories that make sense for your business. For example:

  • Strategic — those who are woven into the fabric of your company;
  • Critical — those that could cause a disruption in your manufacturing line, your services or delivery to market, such as an IT consultant working on code for a new product you are about to market;
  • Approved — a supplier that has gone through a due diligence process but one that can be replaced without severe disruption; and,
  • Used — suppliers that are low-dollar, low-value, easily replaced and did not go through a formal due diligence process.


Identify the types of supplier risk that will most affect those suppliers.

Determine the types of risk levers that can affect suppliers and how prepared your organization is. The following risk levers are examples of variables that can cause disruption or bring an opportunity to your supply base and can be tracked: Financial, Environmental, Operational, Legal, Political.

Strategic and Critical suppliers should be monitored daily, while Approved and Used suppliers may only need to be monitored weekly or monthly. At the very least, all suppliers should be reported upon every quarter. A supplier that you spent $50 with for a widget can ruin a brand or cause a public relations problem if they are debarred by the U.S. government or found guilty of using child labor.

Determine which sources of information to monitor.

News feeds, government control lists, court filings, payment history, earnings reports — these are just a few of the external information sources you can use to monitor suppliers. Technology solutions today can amass these sources and then filter to what's most important for each supplier or to your business as a whole.

Internal information can also be used to monitor suppliers. Two excellent sources often overlooked are internal surveys as well as surveys of external colleagues who use that supplier. This gives more subjective insights that will lend to a better understanding of the perception of the supplier in the marketplace.

Establish a repetitive process to monitor external and internal data in real-time.

Supplier failure can happen overnight, as was proven in the last recession. By monitoring in real-time, you can proactively manage potential supplier failure and reduce the risk of a disruption to your business.

Step 3 — Analyze

Enrich internal data with third-party information to increase visibility and create actionable intelligence.

If the Golden Rule is "if you do not measure it, you do not control it" then the First Corollary is "if you do not measure the right metrics, you will not properly control it." Bring intelligence to the spend and supplier data aggregated in Step 1 ("Certify") by combining it with the third-party information collected in Step 2 ("Monitor"). Technology in today's marketplace combines the data automatically to reduce the amount of time and resources required to manually analyze and create reports. Suggested areas to analyze include:

  • Corporate linkage
  • Diversity
  • Financial risk
  • Spend by category, by business unit, by country
  • Supplier performance

 

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