Balance Supplier Risk Versus Reward

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


Bookmark and Share
November 17, 2010 —



  • Defining and prioritizing supplier tiers;
  • Utilizing risk assessment processes for new product/service requests;
  • Incorporating initial and ongoing supplier due diligence;
  • Utilizing balanced category scorecards;
  • Adopting robust supplier performance reporting and issue resolution;
  • Developing and regularly updating category market research profiles;
  • Implementing a supplier Six Sigma program.



Define and Prioritize Supplier Tiers



Example Supplier Category Tier

Example Definition

1

A significant-spend supplier whose products/service are critical to a company's revenues and require:

         — Complex contracts that drive continuous improvement

         — Proactive supplier relationship management

         — Detailed monthly supplier performance reporting

         — Proactive forecasting

2

A moderately high-spend supplier whose products/service are important to a company's revenue and require:

         — Complex contracts

         — Proactive supplier relationship management

         — Detailed quarterly supplier performance reporting

3

A supplier whose products/service are not critical to a company's revenue but require:

         — Complex or basic standard contracts

         — Annual performance reporting

4

A supplier whose products/service are not critical to a company's revenue and who:

         — Falls within a non-procurement-managed category

         — May utilize standard purchase order terms and conditions





Risk Assessment Processes for New Product and Service Requests



Figure 1

Figure 1. Risk Assessment Steps
Balancing Supplier Risk Versus Reward - Risk Assessment Steps

Bookmark and Share
Initial and Ongoing Supplier Due Diligence







  • Supplier financials
  • Insurance certificate
  • Business continuity plan
  • Audit report
  • Subcontractors to be utilized (if applicable)
  • Vendor management policy and program of subcontractors (if applicable)
  • Past and current references
  • Country risk assessment (if supplier is supporting you outside the US)
  • Management turnover
  • Product or plant closures
  • Requests for payment term adjustments
  • Deep discounting, etc.



  • Physical security policy
  • Asset management policy
  • Background screening process
  • Access controls
  • Information security policy
  • Information security breach history
  • Incident management program
  • Business continuity test results

Balanced Category Scorecards



Figure 2

Figure 2. Category Scorecard Example
Balancing Supplier Risk Versus Reward - Category Scorecard Example

Bookmark and Share
Robust Supplier Performance Reporting and Issue Resolution



Example Frequency

Example Activity

Daily

     — Supplier daily report is developed and reviewed between supplier first-level management and company's first-level management

     — Majority of key questions and tactical issues are resolved in the daily meetings

Weekly

     — Supplier weekly report is developed and reviewed between supplier first- and second-level management and company's first- and second-level management, and Procurement

      — Some of the remaining key tactical issues are resolved in the weekly meetings

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

This content continues onto the next page...
  • Enhance Your Experience.

    When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required