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Supplier Risk Management for ISM 4-16
- 1. Improving Your SUPPLIER RISK MANAGEMENT Program Randy Christoffersen Executive Director, ISM-Twin Cities Sr. Associate, The TPD Group execdirector@ism-twin cities.org randyc@tpdus.com Presentation uses best practice information from: CapsResearch recent studies.
- 2. AGENDA Background Challenges Traits of Most Advanced Companies Risk Management Process A Simple Tool Developing an Action Plan Reducing Future Risk Some 3rd Party Options What’s Next in Risk Management? Wrap-Up and Q&A
- 3. BACKGROUND Many supply disruptions over the last few years have advanced risk management to the forefront for supply management professionals. Recent surveys of CPO’s have shown risk management is in their top list of concerns for their companies. Some of the drivers of increased risk More global sourcing—longer more complex supply chains Financial challenges (global and local) Natural disasters (earthquakes, tsunamis, etc.) Compliance and regulatory issues (e.g. Customs, labor laws, OSHA violations, conflict minerals violations, etc.) Freight disruptions such as dock strikes Strikes at suppliers Supplier performance issues (quality, delivery, etc.)
- 4. A FEW OF THE CHALLENGES Lack of resources Lack of time and priority Lack of tools to manage Difficult to show ROI for investment Limited visibility beyond the tier one suppliers 51% of disruptions occur in the sub-supplier chain (2014 BCI study) Difficulty to keep up with parameters as data changes “Drowning in data”—Unable to follow up on alerts
- 5. TRAITS OF MOST ADVANCED COMPANIES Executive level reviews of risks and mitigation plans Clearly defined risk categories tied to company strategy Clear process to identify and communicate risks & probabilities/impact across functions and business units Company-wide focus on risk management audits and company- wide improvement with appropriate resources Risk identification and mitigation begins at the earliest stages of new business and product development and becomes part of company-wide culture
- 6. TRAITS OF MOST ADVANCED COMPANIES Emphasis on risk prevention with real-time data collection Extended value chain visibility with collaborative risk management efforts with key suppliers/ customers Increasingly sophisticated risk management tools: scenario planning, contingency planning, predictive analytics, simulation Trained and enabled quick-strike and on-going value chain response teams and communications/ actions in response to crisis events Broad application to both direct and indirect materials
- 7. SUPPLIER RISK MANAGEMENT PROCESS Most best practice supplier risk management processes use a similar framework: Identify suppliers and risk factors to assess Re-visit and recalibrate model Assess risks and outcomes Monitor risks Develop plans to mitigate risks
- 8. RISK PRIORITIZATION Assessing the potential risks For planning purposes, most companies use a framework such as this: In our day of limited resources and time, it is critical to focus on the “upper right quadrant” risks.
- 9. A SIMPLE TOOL—GETTING STARTED Define suppliers to assess Use categorization principles Start with direct suppliers Define criteria to consider Define weights for criteria Sort list by top risk Define mitigation plan and assign responsibility Re-visit periodically (as appropriate) Verify the “right” suppliers are being assessed Re-check the criteria and weighting
- 10. SAMPLE CRITERIA TO CONSIDER Number of parts Potential alternative suppliers Difficulty to qualify a new supplier Supplier performance (quality & delivery) Supplier financial strength Supplier location Cost impact to move Our importance to them Depth of leadership at supplier Impact to our revenue
- 11. REVIEW OF SOME EXAMPLES Link to Excel Matrix Risk Assessment Sample Matrix 5-16.xlsx
- 12. DEVELOPING AN ACTION PLAN Some options to consider 1. Do nothing—accept the risk 2. Reduce the risk Qualify a second source Increase inventory Develop formal contingency plans if a disruption occurs Perform a last time buy for products going obsolete in the future Develop a long term supply agreement Review and challenge supplier’s existing business continuity plans ??? 3. Shift the risk (e.g. take out insurance) 4. Develop a “fast action” response plan if an event occurs
- 13. REDUCING FUTURE RISK Some options to consider 1. Strengthen your RFI process to gather more data on risk 2. Make providing key risk data a mandatory step in your supplier selection process 3. Incorporate risk into your sourcing decisions E.G. use a risk-factor multiplier 4. Consider paying a third party to help in your risk management process 5. Maintain supplier risk data in an easily accessible data base 6. Increase resources focused on risk—appoint a risk manager
- 14. 3rd PARTY OPTIONS Risk management has exploded in the last few years. Some companies to consider if you decide to look into using a 3rd party: Dun & Bradstreet Resilinc Risk Methods Lexis Nexus Amber Road MetricStream RapidResponse by Kinaxis
- 15. WHAT’S NEXT IN RISK MANAGEMENT? Risk management will become an embedded part of supply management The need for effective risk management will force companies to look past tier one suppliers Total cost of ownership (TCO) models will increasingly incorporate risk assessment across the value chain Value chain risk metrics will shift from reactive to predictive indicators
- 16. WHAT’S NEXT IN RISK MANAGEMENT? Risk management approaches will rely more on prevention and less on mitigation Transparency and real-time data updates will increasingly replace reactive and batch-data updates Continuous improvement of risk management capabilities will become a major corporate priority Because exposure to value chain risk continues to increase, new and innovative approaches will emerge
- 17. WHERE SHOULD YOU GO FROM HERE? If you have no system or process? Try out the Excel tool If you have a process, but it needs major improvement? Consider a 3rd party software solution If you have a strong process, review the “Traits of most advanced companies” and the “What’s next in risk management?” slides. Critique your process and see if some changes would be helpful vs. the key points in these slides.
- 18. WRAP-UP and Q & A