Four Steps to Mitigating Supplier Risk and Protect Your Supply Chain

Predicting and preparing for variables that can affect your operations


Trend the information over time.

The Second Corollary to the Golden Rule is "if I am not refreshing my data in a timely manner, I am not properly controlling it." The process needs to be easy and repeatable, and it needs to produce usable information. This is the basic tenet of any good process.

By repeating the analysis and trending the information month-over-month or quarter-over-quarter, you gain a bigger picture as to how your supplier performs and what are acceptable behavior thresholds. Additionally, you can gain a better understanding of how your own organization performs.

Here's an example, using courier services: Your supplier's performance against service levels may drop between the months of November and January. During that same period your volume of shipments has nearly doubled (holiday rush was not accounted for in your contract). The supplier's poor performance is explained by the unanticipated increase in demand. The following year you will account for the increased demand and adjust the SLAs accordingly.

Step 4 — Mitigate

Develop disaster recovery plans in the event of supplier failure.

You can't predict supplier failure with 100 percent certainty. But you can protect your business by planning for it. Your Strategic and Critical suppliers will have the most impact on your business if they are suddenly unable to perform. Proactively prepare for these potentially damaging supplier disruptions by having alternative source strategies in place. Develop supplier contingency plans by documenting competitive suppliers and continually researching for new suppliers. Refresh contingency plans quarterly to keep the information fresh and relevant.

Continually assess the strengths and weaknesses of suppliers.

Repeat steps 1 — 3.

About the Authors: Jim Kelly, C.P.M., is CEO, JVKellyGroup, Inc., and Jennifer Lawrence is a director with JVKellyGroup, Inc. JVKellyGroup, a D&B company, provides cost reduction and risk mitigation solutions, offering an integrated set of analytics, sourcing services and technology to ensure that a company's spend is effectively analyzed, sourced, managed and monitored. More information at www.jvkellygroup.com.

 

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