What degree of risk are you exposed as a result of a “single” supplier relationship?
For example, last year as we watched multiple hurricanes, earthquakes and wild fires cause havoc throughout North America, many organizations likely asked, “What is our firm’s capacity to handle a global or domestic supply chain interruption?”
A benchmark study released by CAPS Research showed that 29% of the organizations surveyed do not have a Supplier Risk Program in place and of the 71% who do, 5% pay minimal attention to the subject and 30% have a “basic” program. So, is your firm one of these who think “It won’t happen to us,” or “All the required preparation for something that may never happen takes time and money and we have more important issues keeping us busy?” If so, consider the results from Deloitte’s Global Survey on Third Party Governance and Risk Management. They found that 87% of respondents have faced a disruptive incident with third parties in the last 2 to 3 years in which 28% faced a major disruption and 11% experienced a complete third-party failure.
While it is impossible to eliminate all risks, taking proactive steps to prepare for rainy day supply disrupting events such as earthquakes, plant explosions, supplier union strikes, bankruptcies and acquisitions should be an on-going activity. It is easy to assume that the risk is the supplier’s concern and often that may be the case, however the disrupting situation may not always be within their control.
Planning is the first step towards identifying your firm’s vulnerability and mitigating supplier risks. Consider these key questions:
- From a supplier perspective, do you know where your business is most vulnerable?
- What best describes how you asses risk for your key suppliers or you don’t really do it unless there’s some type of adverse event?
- Do you or your suppliers have “alternative source” agreements in place that ensure that your needs are met by a qualified source while your supplier recovers in the event of an interruption?
It is the responsibility of leadership to manage Supplier Risk. Have you considered how much Supplier Risk is acceptable? If your company hasn’t, your procurement group does not have the bandwidth, or if you just are looking for some guidance, there are third parties who can help.
It is far better to be able to execute a plan so that the most likely major negative event for your business has the impact of a temporary inconvenience rather than a major shutdown.