Supply Risk Management

What is supply risk management? The ISM Glossary defines risk management as directing or conducting the activities necessary to reduce, eliminate the impact of factors that could lead to injury, loss, damage or failure.

Risk management is a program that includes the processes of identifying the risk, quantifying the risk and assigning responsibility for management of the risk and risk mitigation actions.

The risk of disruption to production and distribution processes needs to be examined. In addition, supply risk should be examined on a part or SKU basis or on a specific service provision basis.

Do we as distributors to many manufacturers (our customers) understand the risk factor on the products and services we provide? Do we think about our customer having to shut down a production line because we as a distributor failed to have the product on the shelf and available.

Buyers set up reserves of products for customers; however this does not necessarily mean they are critical items for the manufacturers. It means the distributor agrees to keep product on hand and available for the customer. Companies keep safety stock on hand.
When you as a buyer handle several thousand SKU’s, how do you determine what is a high risk item?

The lack of an inexpensive part or service can shut down an assembly line or prevent the
on time delivery to the end user. Executive management is becoming more concerned with the continued availability of some commodities than with the cost of those commodities. Remember the old adage that “something is not managed unless it is measured.”

Everything is numbers. Everything must be measured. Are we failing to discuss, inform and stress the reasons for the numbers and measurements? For better results from your procurement staff, your suppliers and your customers, you must have communication.
Reports must mean more than numbers on a piece of paper. The reason you are measuring something and the benefits you expect to receive should be communicated to all.

Risk Management is the hot topic in Supply Management. How much do you know about it? Better yet, what should you be doing about it?