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Better Supplier Risk Management: 3 Tips

Better Supplier Risk Management: 3 Tips

CPO

riskmethods

Supplier risk management is just one element of the larger picture of supply chain risk management (which includes monitoring not just suppliers, but also geographical locations, supply paths and more)—but it’s a very crucial element. Let’s break down a few top tips that will help any company make their supply chain, and therefore their business, more resilient.

 

#1: Find out where your suppliers’ manufacturing facilities are located so that you can monitor for risk affecting relevant regions.

Here’s a fun (or not-so-fun) fact: A lot of companies don’t know where their suppliers are actually located. Often, they’re able to tell you where their suppliers’ headquarters are (in other words, where they’re sending the money)—but when you ask them where the supplier is actually manufacturing their supplies, it’s a completely different story. They just don’t know. And what if the supplier has multiple manufacturing locations? Then they really don’t know.

 

But this is such a key element of supplier risk management! How can you make sure everything is going smoothly if you don’t know where most of your suppliers are actually located? Spoiler: You can’t. If you want to improve the reliability of your supply chain, it’s time to take this key step: Find out where all your suppliers’ manufacturing facilities are located, and make sure you’re aware if an event might impact operations in those areas (for example, a snowstorm).   

 

#2: Compare the risk scores of your current suppliers with prospective suppliers.                                       

If you know how your current suppliers are trending with respect to risk, you’re well on your way to resilience. But there’s more you can do: Compare prospective suppliers to current suppliers. 

 

This is a crucial way to stay on top of weak links. Are you seeing that a key supplier of yours is trending poorly in their risk scores, while a prospective alternative supplier is doing well? Maybe it’s time to consider a switch. By having this information at your fingertips, you’re able to spot vulnerabilities before they actually affect you, and make adjustments to fix those vulnerabilities. (Learn more about risk-aware vetting of prospective suppliers here.)

 

#3: Monitor your risk exposure by business units, categories and product groups.

It’s one thing to look at your suppliers as a whole—and another to be able to start drilling down into this data to get even more information. To start, you should categorize your suppliers so that you can understand what particular areas of the business are going to be affected by potential risk events. Specifically, focus on filters for three pieces of supplier metadata: business units, categories and product groups. Say, for example, you’re a company that manufactures cars—you might want to categorize your suppliers so you can filter down and understand your risk exposure for individual car models, the major product categories that go into those models (engines, wheels, seats) and then the product groups that make up each of those categories (4-cylinder engines, 6-cylinder engines, etc.).               

 

Supplier risk management is complex, and is only one element of what you should be doing to keep risk from making your job harder—but if done right, it can do a lot to keep your supply chain secure. Check out our guide to learn more about how to be a risk-aware CPO. And to learn more about supply chain risk management, check out this video about riskmethods.

 

To learn more about riskmethods, visit here.

To learn about other CPO events, visit here.

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The Humble Invoice CPO 09
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The Humble Invoice

By Richard D’Cruze, Managing Director at Pagero

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