“Embedding Risk Management”

Today’s guest blogger is my colleague James Baehr, a Senior Advisor at Greybeard Advisors LLC, and a contributing author of the new book “Next Level Supply Management Excellence: Your Straight to the Bottom Line® Roadmap.” Jim can be reached at [email protected].

For a Supply Chain Risk Management program to be effective it must be embedded within your sourcing process. Numerous reports show that supply risks have continued to grow over the past decade. This isn’t a surprise as supply chains have become more complex, covering a broader geography, and compounded by heightened internal and external expectations. Risk management approaches should be tailored to the acquisition process and take into account all phases of the life cycle of a product or service. Risk management is forward looking and anticipates causes and consequences; otherwise it becomes “issue management” where resources are applied to resolve a current problem or emergency.

A complete Risk Management Process is made up of risk analysis (identification and assessment), risk mitigation (what to do) and risk monitoring (watching) - all should be continuous. Too many supply chain risks are addressed by improvisation, which is a clear indicator that there is no management process. While it’s human nature to take satisfaction from solving a problem, it’s typically a very costly way of doing business. Think of the difference between installing a traffic light at a busy intersection – you can anticipate accidents and plan accordingly or you can wait until an accident, or several, occur and then install the traffic light – good old fashioned proactive versus reactive thinking.

If your company uses a strategic sourcing process, are you taking into consideration the risks that can be incurred if your sourcing strategy is implemented? Or, are you weighing price too heavily and relegating risks to being afterthoughts? The development of sourcing strategies is the best time to address supply risks. Cross-functional teams can help define and identify the risks. The risks can be built into the Request for “x” to assess what can be done to anticipate the risk and mitigation of the risks can be negotiated in the agreement with the provider. Keep in mind that Risk Management is an ongoing process and doesn’t end with the signing of a contract.

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