Conference season is upon us, and no topic seems to be more regularly discussed than supplier risk. In fact, at two recent conferences, almost the exact same question was posed during a keynote presentation: 'have you had to buy a supplier this year?'. While only a few hands were raised in acknowledgement, the number of nods and/or knowing smiles suggested that many companies have either come close or spent time this year worrying about the viability of important components of their
We have talked in our research on risk about a supply risk matrix, built off the traditional 2-by-2 supplier assessment that plots the proprietary nature of an ingredient or component against the volume that is required. The importance of a supplier is then directly related to their impact on overall supply chain risk. If a supplier judged as high priority shows signs of potential failure, a more active monitoring approach, or even intervention, is required. It is also interesting that manufacturers are talking about closer relationships with suppliers. Although something of a generalization, it has always been our view that manufacturers take a customer first, supplier second view – and it makes sense! Certainly CRM has been viewed as more compelling business facilitator than SRM, but perhaps that needs to change a bit?
At IDC Manufacturing Insights, we have been giving the following advice to our clients:
- Get as much visibility as you can into key supplier operations. We had done a survey late last year on collaboration between manufacturers and their suppliers, and even then, improved scorecards and business audits were in the top three responses. Visibility into supplier performance is the best early-warning system for problems.
- Involve key suppliers in the business planning process. Clearly there is a scale challenge here. One cannot, for example, expect to run a manageable S&OP process involving 100 suppliers, but do make sure to involve key suppliers in some fashion. We do not wish to suggest that spend efficiency and 'the best price' won't continue to be the most important procurement KPI, but do consider a more strategic pricing relationship with certain key supply points.
- TARP for Suppliers. Clearly, making a strategic investment in a supplier or supply point may become necessary. In the most extreme case, actually buying a supplier, it may be reversing the general outsourcing trend, but if it makes sense in the context of avoiding business interruption and ensuring continuity, so be it. As we observed at the outset, there don’t appear to have been too many cases where an outright purchase has been necessary, but certainly there have been some 'close calls' and no doubt less extreme forms of TARP-like investments.
We would love your feedback. What has your company done about troubled suppliers? Has it been a problem, or do you foresee it as a problem in 2010?