RISK MANAGEMENT

 RISK MANAGEMENT for supply chain and procurement Specialists

Problems with Procurement

          a) Reliability of Suppliers

          b) Traceability is complex

          c) Procurement is not only about the best price

 

Types of Supply Chain Risks

1) Price Risks:

·       Firstly, dependency on external costs for e.g. distributor’s dependency on external factors is 80-90%, while pharma dependency is 20%. Therefore, this varies from company to company.

·        Raw Material’s cost fluctuations

·        Market Influences: new player or your competitor's policy in the market

2) Supply Risks:

·        Quality Deviation

·        Natural Distractions

·        Third Party influences

·        Not in-time supplies.

3) Supplier Risks:    

·        Manufacturing/technological/production related

·        Social and environmental

·        Reputational Risks

 

Risk Assessment for Supply Chain

Step I

1. Production Industry: 6Ms 

Men, Methods, Machines, Measurements, Materials, Mother Nature

2. PESTEL approach

Step II 

Scale the Risk Factors

1.      Profitability: Low, Medium, High

2.      Severity: Low, Medium, High

Step III

1.      Avoid- If you can prevent the risk.

2.      Transfer- here the role of insurance come in

3.      Mitigate- In this the impact is tried to be reduced

4.      Accept- if none of the above 3 works then prepare yourself for the impact

 

Risk involved in Outsourcing and Insourcing

Outsourcing can give great savings as materials are generally purchased from developing countries where labor costs are low, government policies are flexible, low custom duties etc but at the same time, the risks posed are-

1.      Dependency on external supplier

2.      Quality risks

3.      Delivery Risks

4.      Political and Legal risks

5.      Financial risks

Insourcing comes in picture as the firm grows e.g. the firm can hire legal and accounts services, adopt its own transportation network, acquire small suppliers, etc. but there are some risks associated with it at the same time

1.      You cannot be an expert in everything there are people who are better than u

2.      Additional human and financial resources and the extra efforts have to be considered.

3.      U might break the well-established contacts and then it might become very hard to come back to outsourcing

 

TRUST Approach

1)     Traceability

i)       Keeping the incoming goods record

ii)     Keeping and regularly updating supplier base

iii)    First in First out (FIFO) rule for warehousing

iv)   Incoming quality control

v)     Managing the resource planning systems (SAP, Oracles, ERP)

2)     Requirements

i)       Develop clear specifications and  requirements for each product/services

ii)     Ensure that the supplier know requirements to product/services

iii)   Use this specification for incoming product inspection

3)     Understand and follow-up KPIs: Develop clear KPIs and ensure theu are clearly understood by both the procurement team and the supplier.

4)     Strategic Goals

i)       Documented strategic goal (can be a business idea or the vision of the company)

ii)     Ensure that the procurement team is well aware of this goal

iii)   Share your strategy and strategic goals with ur suppliers as this transparency will result in a harmonious relationship and the suppliers will also be able to relate their development in long term.

5)     Talk

i)       Give and take regular feedbacks with/from suppliers

ii)     Regular visits to critical suppliers

 

Social and Environmental Responsibilities

          Human values:

i)       health and safety

j)       working conditions

k)     environmental care

l)       following ethical and legal norms