Manufacturing next

How Risky is your Supplier Risk Management?

 
November 21, 2017

Most supply chain executives whom we’ve spoken to across the manufacturing industry are grappling with an imperative – derisk the risk in supplier management to enable enterprises deliver the promised customer value.

From my personal experience, I can vouch for the professional hazards of managing supplier eco system in this age. Can you or your business relate to any or all of them?

  1. Risk Blindness – Visibility challenges around suppliers strategic and operational risk
  2. Collaboration Quagmire – Sense trust deficit
  3. New breeds of suppliers – Software vs widgets; IP vs. volume based
  4. Supplier eco system complexity – Increasingly diversified and dispersed supplier network
  5. Innovation challenges – Stuck in transactional relation

If yes, then take comfort in the fact that majority of your peers are in the same boat if not worse. So, what is the way out? Surprisingly, it’s simple.

First things First – Acknowledge!

Let us accept that supplier risk is the biggest external contributor to an organization’s supply chain risk. Once we have done that, let’s (re)identify the factors that contribute to the supplier risk. I have broadly classified this into two buckets:

  • Traditional Risk Factors: Cost, Quality, Delivery, Financial
  • New Age Risk Factors: Compliance, Innovation, Sustainability

I believe in this hyper-competitive age, innovation risk could be something that we should focus on.

Secondly, develop a risk profile

Considering the vast variations in the supplier ecosystem in the manufacturing industry, it will be helpful to profile our suppliers across different risk factors. At TCS, we help our clients assess their supplier risk by evaluating two indexes

  • R Index – Supplier Risk Index Profile
  • I Index – Supplier Innovation Index Profile

You can consider factors like risk strategy, process, transparency, network, people, risk management maturity, supplier operations performance to create the R index profile for your suppliers. Similarly, factors like innovation strategy, innovation adoption into the process, R&D investment, co-innovation culture and so on, could be considered to create the I index profile.

Lastly, develop risk mitigation playbook

Off all the activities associated with getting ready to manage supplier risk, in my view, this would be unique to each organization, as it depends on the organizational risk appetite, supplier relationships, internal work culture and so on.

Here are some broad guide rails we used to help clients action supplier risk management strategies. Some of these may resonate with your organization as well.

  1. Establish a comprehensive view of the supplier segment: Tier 1 – n
  2. Agree on a collaborative, user friendly (read digital) risk data collection approach with suppliers
  3. Provide digital tools with a light foot print for data collection
  4. Formulate supplier risk profiles
  5. Generate insights from data
  6. Establish supplier risk management playbooks
  7. Get going

Does this make sense? While I would never dare prescribe a rigid formula to any business problem, I feel fairly comfortable – driven by my past experience – to state that above steps could provide a broad path for any organization to take the next step forward.

Deepak Mavatoor is a Partner with the Innovation and Transformation Group, in the MFG business unit at Tata Consultancy Services. He leads the North America Supply Chain business advisory activities and support clients across automotive, discrete manufacturing aero and process industries to address the business challenges through transformational and innovative interventions. Deepak has around 20 years of combined industry and consulting global experience. He has an MBA from Ross School of Business, University of Michigan and an engineering degree from Mysore University.