Manage risk in your supply chains
Doug Smock, Editor-in-Chief -- Purchasing, 6/3/2004 2:00:00 AM
Now is the right time to make sure you have a supply chain risk management policy in place. Only about half of the purchasing professionals we surveyed recently say they regularly monitor supply chain risk (see story on page 13). That could get you into a ton of trouble.
This may be one of the most uncertain moments in the modern history of purchasing and supply chain management. Here's why:
Energy prices are a complete wild card. Prices have risen significantly in the past year, and worse, they are completely unpredictable. There is no telling when political tensions will allow a more stable energy outlook.
Many commodity prices, led by steel, have made historic gains so far this year. In the past four months, steel plate prices have risen 91%—and that was totally unexpected. Profit-starved producers would love to do the same for plastic resins. And all of this when fundamental capacity is ample.
Companies now buy from outsides sources much more than they did 10 years ago. American companies used to stamp their own parts and mold their own plastics. Now we generally buy processed materials—and we haven't always treated those suppliers very well, particularly those buyers who abused suppliers with reverse auctions.
There are many other risks, of course: terrorism, computer viruses, financial irresponsibility, and so on.
It's time to make sure you have a written risk management policy just for your supply chain:
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Start by establishing objectives. How much risk are you willing to tolerate—and at what cost? How is it different for various products you buy? What steps must you take to comply with new federal laws, such as auditability requirements in Sarbanes-Oxley?
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Then identify events that could create risk and assess the potential impacts of those risks. One major risk right now is paper-thin inventories. Increasing application of just-in-time deliveries created major shutdowns after Sept. 11, 2001.
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Establish techniques that could be used to mitigate risks, such as option contracts for short-term and reduction of supply chain complexity for long-term (see page 41 for strategic ideas).
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Identify types of control activities, general and specific that can be used to mitigate specific risks.
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Establish a method for ongoing monitoring of the effectiveness of your ideas.
Why supply chains are so slow in developing
09/05/2001Dresser-Rand manages supply chain risk
08/21/2007
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