Combining risk information and criticality data derived from determining the impact enables urgent needs for action to be identified so that risks can be addressed in a proactive manner using appropriate measures, thereby ensuring the success of the company. Read more about the step-by-step approach, and conceptual and organizational implementation of risk assessment!

1. Scope and dimensions for assessing the impact.
Ideally, initial assessment of the level of impact includes
all business partners so that complete transparency
about the criticality of the entire supplier portfolio can
be ensured. In this way, information is obtained regar-
ding which business partners have a significant impact
on sales, margins, or profit for example. We strongly
recommend not carrying out a selection according to
strategically important suppliers or suppliers with high
purchasing volumes. Even C-part suppliers, whose
parts may be found in several products, can present a
high risk. A study done by the Massachusetts Institute of
Technology, in collaboration with Ford, demonstrates
this point: the highest risks actually originate from low-
cost component suppliers that only represent 2 % of the
purchasing volume. Initial assessment of the suppliers
using classifications based on high, medium and low
criticality, for example, can help organizations make
decisions with regards to future impact assessment
timeframes. Accordingly, extremely critical suppliers
could be assessed on an annual basis, for instance,
while longer cycles may be sufficient for medium and
low-risk business partners.
Additional dimensions should be included for criticality
assessments of the entire supply chain such as loca-
tions, countries and logistics hubs. These parameters
can impact availability and the degree of substitutabi-
lity. Where suppliers provide different product groups,
determination of criticality related to a specific product
group or article is also required. This assessment will
show whether different criticality levels apply to the in-
dividual product groups provided by a supplier. It will
also provide information on which suppliers or product
groups present the greatest dependencies. Ideally,
sub-supplier structures should also be included in the
criticality assessment. Supplier portfolios previously
assumed to be low risk suddenly have a high degree of
criticality when looking at the sub-tier level. The rela-
tions among suppliers in the sub-tier structure reveals
a network of relationships that practically result in
single-source situations.
Key questions and parameters for criticality
assessments. In the initial evaluation phase, the "less is
more" approach can be applied when asking the key
questions around the assessment of the extent of loss
or damage. Even in the first stage, between three and
five parameters already provide a good overview of
criticality/dependencies in the supply chains. For
assessing relative criticality, we recommend the fol-
lowing parameters:
• Total time to recover (TTR)
• Degree of substitutability or relocation time
• Impact on corporate image
Possible additional parameters for detailed evaluation
in the case of an event include:
• Number of qualified alternative suppliers
• Number of customers affected
• Costs for corrective marketing and sales activities
• etc.
The financial impact of a supply disruption can also be
evaluated by means of the following parameters:
impact on sales, margins or EBIT.
Here, the procurement organization may need to
change their traditional way of thinking as the correla-
tion between the level of purchasing volume and the
level of loss or damage is low in a supply disruption. It is
Once an organization enables transparency
about risks in order to identify preventive and
urgent actions required along the supply
chain, it is essential to assess the impact of
the supply chains affected. In most cases,
determining criticality related to a specific
product group or article is also indispensable.
The granularity gained in the criticality
assessment enables adequate and targeted
measures to be implemented when a crisis
occurs.
Supply Chain Risk Management
2. RISK IMPACT assessment
Risk
Radar1.
3.Action
Planner
2.Impact
Validator
Controlling
Analytics

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Karl-Heinz Pöhlmann, Group Vice President
Supply Chain, HBM
˝In this way we receive a detailed prognosis
of the impact of a supply disruption and
how this will affect the profitability of the
company, explains Karl-Heinz Pöhlmann,
Group Vice President Supply Chain at HBM.˝
therefore important to use specific sales or lost profit
dimensions for the financial evaluation.
Integration of risk management in the organization.
Internal information sources should be the first place to
go for answers pertaining to the evaluation. Know-how
for purposes of the evaluation can in 95 % of cases be
found with the responsible lead buyers, commodity
managers or logistics experts. Data for the complete
evaluation can be automatically sourced via BI tools or
ERP systems and then integrated. Smooth integration of
the risk analysis in the organization requires that the
cycle-based evaluation is incorporated in the role
profiles of the relevant responsible parties. To this end, it
is helpful to set up an automated process for supporting
their tasks by way of email notifications, system-
supported assessments and evaluation and analysis
options.
Portfolio analysis. The results of risk analysis, com-
bined with the results of risk identification are best illus-
trated in the form of a portfolio (see figure). The color of
the fields (red, yellow, green) represents the level of risk
and criticality. The objects in the red area must be given
priority in terms of monitoring. Furthermore, it should be
noted that the size of the objects reflects the total extent
of loss or damage. The larger the object, the higher the
potential financial loss in terms of sales or profit of the
company. Both the positioning and size of the objects
are the basis for planning risk measures. In addition, the
evaluation parameters (see above) can be used as
supplementary information for other procurement pro-
cesses such as supplier validation, supplier classifica-
tion, supplier development or contract award decisions.
Hottinger Baldwin Messtechnik (HBM), experts in
measuring technology for determining electrical and
mechanical parameters, use an evaluation matrix and
portfolio analysis of this nature for assessing risks in
their supply chain.
Benefits of risk assessment:
• Prerequisite for adequate, preventive and
reactive measures (reduce, prevent, transfer)
• Basis for development of a risk management
and portfolio strategy, e. g. for procurement
market analysis, product group strategy,
contract award decisions, warehousing, CSR
and compliance
• Reduced CBI insurance premiums of up to 50 %*
* Source: ROI of Supply Chain Risk Management study,
eckseler consult riskmethods
Supply Chain Risk Management
2. RISK IMPACT assessment
As a result, HBM is able to identify which suppliers
require certain measures for risk prevention.
Threat / Probability
Impact/Criticality
low high
high