Four Ways to Manage Supplier Risk
podcast episode with speaker Greg Hutchins
Covid taught us the importance of managing suppliers, especially those from China and Asia. Risk became the top supply management concern over supplier delivery, quality, and cost. For example, just-in-time deliveries became just-in-case—many common sense ideas of lean changed. Incoming, in-process, and final inventories rose. Overall costs increased. Risk became the overarching concern for managing suppliers.
OEMs are now developing new operating models and sourcing models. ‘Make or buy’ decisions that were made 20 years or more ago are being reassessed. Sourcing decisions in China are being rethought. Domestic sourcing and reshoring are occurring rapidly.
In this workshop, Greg Hutchins will discuss four ways to manage supplier risk: 1. Accept sourcing risks; 2. Diversify sourcing risks; 3. Share sourcing risks; and 4. Manage (control) sourcing risks.
This Accendo Reliability webinar was originally broadcast on 4 July 2023.
Additional content that may be of interest
IPC Validation Services & the Trusted Supplier Program episode
Supplier Control Plans and Design Specs episode
Dealing with Suppliers episode
Choosing Reliable Suppliers episode
How to not do supplier relationships episode
Common Risks to Expect – Any thoughs?
Throughout your career in international trade and logistics, there are six key types of risk that you can expect to face:
Credit risk. The risk of not collecting an account receivable.
International property risk. The risk of third parties making unauthorized use of your business’s proprietary strategic information.
Foreign exchange risk. The risk of foreign exchange rates fluctuating drastically and interrupting your profit/loss statement.
Ethics risk. The risk that foreign business partners may adhere to a different set of morals than your own.
Shipping risks. The risk that goods will be contaminated, seized, broken, stolen or lost while in transit.
Country and political risks. Risks such as tariffs, central bank exchange regulations, or bans that could interrupt your business.
Risk Management Strategies – Any thoughts?
As far as handling the above risks, a detailed answer is beyond the scope of this article and a topic best left to advanced Master of Business Administration (MBA) programs. However, a few common risk management strategies include:
Exercising due diligence. Especially regarding personnel, engaging with a carrier or providing/accepting documentation.
Creating contracts. Ensure that the terms of the working arrangement are clear and that all parties are on the same page.
Communicating promptly. Create timely flows of communication between you, your team, superiors, contractors and other stakeholders. As the saying goes, the tougher a conversation, the sooner you should have it.
Hi Carl:
Great points. Great examples. In our experience, business and technical risk were separated. Our client (the OEM) would manage the business risks mentioned above.
Our company managed technical risks such as design, quality, reliability, recalls, etc. These were outsourced to us.
This worked well. At the end of the year, we would put both into a graded matrix and evaluate the suppliers.
Our experience is that more companies are bringing these internally.
Best,
Mr. Seneca:
Great points. Write on.
Most if not all conversations with suppliers are crucial and tough. We would usually manage the technical elements of our suppliers with exception management. If things were going well, there would be periodic check ins. If things were not going well, there would be CAPA’s or further escalations. If there were product nonconformances, then there would be even face to face communications.