Supply Chain Risk Management

Supply Chain Risk Management

Supply Chain Risk Management
Supply Chain Risk Management
 


Your supply chain is similar to a line of standing dominos, if one piece goes down, it could cause a chain reaction and take all the other pieces down with it. If you have a supplier or manufacturer in your supply chain that goes bankrupt or consistently delivers late, you could have a serious disruption on your hands. It makes sense that you’d want to take the necessary precautions when choosing new businesses to add to your supply chain, in order to try and avoid the domino effect.
Traditional methods for managing supply chain risk rely on knowing the likelihood of occurrence and the magnitude of impact for every potential event that could materially disrupt a firm’s operations but it’s a different story for low-probability, high-impact events: historical data on these rare events are limited or nonexistent, their risk is hard to quantify using traditional models and the greatest exposures often lie in unlikely places.

Most companies focus their risk-management activities on suppliers for whom total spend and performance impact are both high. Because these items typically come from a single supplier, appropriate risk-mitigation strategies include strategic partnering with the suppliers to analyze and reduce their risk exposure, providing incentives to some suppliers to have multiple manufacturing sites in different regions, tracking suppliers’ performance, and developing and implementing business continuity plans.

Many companies, however, are subject to considerable exposure from “hidden risk” suppliers. Here, total spend is low but the financial impact of a disruption is high. Traditional risk-assessment exercises overlook these items because they are perceived as adding little value to the firm’s results but  sometimes the criticality of an item is not related to its price, as it can be the case with spare parts or other components.
Alternatively, companies can use flexibility to deal with hidden supply risks. System, product and/or process flexibility can help to quickly respond to hidden supply chain risk through adaptability by routing demand to different vendors, using alternative parts or changing product design.

Predictive scores can offer insight into whether a business will become delinquent, file for bankruptcy, or become inactive in the near future.  Performance based scores offer insight into how low or high risk a business could be, how much credit should be extended to the business, and how credible the business may be overall.  
 
A business credit report conveniently displays these scores and ratings, along with other information about the business, in order to help the viewer have a better understanding of a company and how it operates. In the case of the domino supply chain, having this type of knowledge about a business could be the difference between having a strong supply chain or having weak links.

                                                         Frank Velunza Martinez
About:
Experienced commercial executive with strong interpersonal skills and the capacity to work in teams or independently, under pressure and tight deadlines.  Previous positions have been in management, strategic global sourcing and distribution within Supply Chain Management. I have mostly been involved in procurement of complex technology projects, security, IT, consumer and automotive products.  
 
Recently completed a Master Certificate in Supply Chain Management and Procurement with the Michigan State University. I am currently working on APICS-CPIM and pursuing SCMAO (formely known as OIPMAC)-CSCMP in order to certify my skills in North America. I am also enrolled in several other courses.  As an insatiable self-learner I am passionate about inclusive leadership, strategy, management, efficiency and economics.
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