This is part 2 of a guide for procurement teams on reducing sourcing-related risks.
In part 1 we covered a basic framework for approaching supplier sourcing from a risk perspective. Here I would like to start walking through some of these steps in more detail.
A Risk Event
There are two possibilities.
- A risk is foreseen and avoided or mitigated with proper planning
- A risk event occurs and is from that point forward avoided or mitigated.
The first option is preferred. Preventative is almost always less expensive the prescriptive. If we can properly understand the risks and prepare for them, we avoid large and uncertain costs in the future.
The problem is that it is near impossible for us to always understand all possible risks.
As the landscape changes we see new risks, with new complexities, that may have never happened before. For this reason we take a two pronged approach to understanding the possible sourcing risks we face.
First, we do intense research on what may happen. This is the focus of the remaining part of the post.
Second, we put in place a detailed and high coverage process to capture all issues, problems, consequences, and proposed strategies going forward to help the initial risk research become more robust.
Through research and experience, the procurement department can then mature in risk and mitigation strategies, creating procedures that delivery value and quality while reducing large supplier-related costs.
So how to we preempt possible risks in the first place?
Research Potential Risks
The initial requires us to research potential risks. Where do we get these potential risk? We can look at a number of places, but I suggest the following starting areas:
Internal Historical Records
Think about when you have been surprised by a vendor or shipment, or when an order put you in a tough spot. Perhaps you received a bad part, or perhaps the delivery was late and a customer was upset. By taking stock of past circumstances, you will get an idea of the risks most applicable to you, your firm, and your industry.
Some places to look for inspiration might be
- quality actions
- meeting minutes
- internal memos or slack
- purchase orders for expedites or break-in charges
Anything that caused you stress, extra money, or extra time can often be traced to some un-controlled risk.
Often when people get desperate, they start asking questions. In today’s world, many of these questions are preserved in industry forums or dialogues. I often go here to see what problems prompted questions and people looking for solutions.
It helps to see the world through a problem someone else may have had. Then consider if you might have it as well in the future.
Reaching out to other people you may know in the industry can be a great resource for finding potential issues; even suppliers. Reach out to your suppliers and ask questions about some of tough deadlines or orders they have had recently.
Asking the right questions directly to the supplier can show possible risks that you were not aware of. Be sure to craft a purposefully designed supplier on-boarding survey or self-assessment, rather than just use a template. This can help unearth some possible issues that may occur in the future.
One great question I ask is
Tell me about your most difficult customers and their orders? What is the problem?
This question can give you a lot of information. Besides showing you potential risks or mis-understanding that another firm is facing, it can also show you a perspective on your supply chain that you may not currently have. I have walked away from the question numerous times saying “That’s why they always …” or “That explains the issue I am having with …”
Read Content From Influencers
Influencers in every industry create a following by creating content. Content only gets shared and read if it addresses concerns that many in the industry are facing. So much of the content from influencers can be seen as a collection of issues and concerns that exist in the industry.
Reading blogs, articles, tweets, books, and other content from industry influencers can give you insight into what concerns and risks are being faced right now.
By researching the possible risks, you set a better foundation for strategy development. A strategy that works is usually fairly simple and robust.
- It is simple in that it requires few steps, low work disruption to carry out, and stops the majority of possible issues.
- It is robust in that as new risks emerge, it has a high likelihood of catching those as well, without retooling or changing the strategy.
In order for supplier risk strategy to be simple, and robust, you need to understand the few root causes of the many different problems that surface. This can only be done correctly by research the various issues with enough data that a root cause analysis can be done.
Thank you for reading
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