Effective business continuity and resilience means more than just looking internally at your organisation’s processes, systems and dependencies – external suppliers must be considered in planning for a potentially disruptive event.
Assessing and mitigating critical supplier risks is vital in fast-paced operational settings, such as manufacturing industries that utilise just in time inventory management systems, but relevant to all sectors in an environment where outsourcing is becoming more and more prevalent.
The risk of supply chain disruption may exist not only for day-to-day operational suppliers but also strategic partners, where a third party contributes significantly towards the achievement of organisational objectives and growth plans.
Responding to supplier risk is not always straightforward, as limited and sometimes inconsistent information may be available on the business continuity and resilience capabilities of suppliers – publicly available data only provides so much transparency.
Agilient suggests four key steps to assess and mitigate supplier risk in your organisation:
- Identify critical suppliers – organisations will depend on some suppliers more than others, so a systematic approach is needed to rank external providers based on their level of criticality. This approach can be incorporated into existing risk and business impact assessment methods, to identify supplier dependencies within critical business functions and processes. A detailed approach, mapping all tiers of the supply chain, should be taken so nothing is overlooked, for example, a third party payment gateway for certain transaction types, or an inconspicuous but specialised component within a complex manufactured technology produced by a niche supplier.
- Assess current capability and risk – develop a supplier governance capability and work with critical suppliers to understand their level of resilience. Start the conversation and ask questions – what continuity strategies and plans do they have in place? Have they experienced any recent disruptions? How did they respond? Collect and analyse relevant data to be informed of the resilience capability of suppliers.
- Take action to mitigate – establish workable strategies to reduce supplier risk, such as the use of alternative suppliers, allocation of emergency stock, and identification of substitute parts and materials. Embed supplier resilience into procurement and sourcing processes, by stipulating supplier continuity requirements during initial tendering, and maintain this focus all the way through to contract negotiation, defining clear contingency arrangements in the event of a supplier disruption. This approach is crucial for engaging with new suppliers, as well as when negotiating contract renewals.
- Monitor and collaborate – after the signing of supplier contracts, request suppliers provide information regularly that demonstrates the maintenance of their continuity and resilience capability, such as business continuity plans, business continuity test results, and post-incident reviews of any disruptive events. Involve critical suppliers in joint resilience planning and exercising, to understand how both customer and supplier can work together during a disruptive event.
Agilient understands the complexities of assessing and responding to supplier risk in critical business functions and processes and can support your organisation through this process using a pragmatic approach.
Contact us today to find out more about effective solutions for supplier risk management.
References:
http://spendmatters.com/2015/07/10/6-steps-to-integrated-supplier-risk-management/
https://www.pwc.com.au/assurance/assets/supplier-risk-management-study-27nov13.pdf