It can often prove essential to be a proactive problem-solver in business. Even the smallest problem can snowball into an issue that is detrimental to the success of a company. As a result, many manufacturing facilities have found it more and more conducive to adopt a highly proactive approach towards managing their supply chain disruptions. Manufacturers must make it a priority to closely examine potential hazards in order to minimize corresponding risks.
Suppliers Risk Assessment
Wondering where to begin? Start with a risk assessment that identifies and analyzes risk. Consider four fundamental risk questions:
- What might go wrong?
- What is the likelihood (probability) it will go wrong?
- Can I detect it in time to prevent the event from occurring?
- What are the consequences (severity)?
To proactively manage risks, build a risk management program tailored to fit your company.
Here are two key points to keep in mind:
- Consider the amount of the revenue (Value at Risk) that is at risk for each of your value streams
- Remember to evaluate sub-tier suppliers risk
A Supply Chain Risk Management Plan has four key components:
- Risk Identification
- Risk Assessment
- Risk Action Management
- Risk Reporting and Monitoring
Score Your Suppliers
Certain suppliers have more inherent risk than others. To track the risks that come with different suppliers, be sure to calculate the impact of the risk event. This will enable you to rank different suppliers based on their risks. Laying out different risks will help you better understand your suppliers, and it also will enable you to discover risks that may have not been immediately visible before.
Identify Your Critical Suppliers
Critical suppliers should be ranked by the amount of revenue that is at risk, rather than top spend or top threats. The location of each supplier matters. Look at historical disasters and note their geological locations to get a better sense of how at-risk a certain supplier is.
Next determine a mitigation strategy to reduce the Value at Risk for each supplier. A mitigation benefit analysis can then be compared for each supplier.
This will help to determine if the proposed mitigation strategy is cost effective. The cost to implement is compared to the reduction in the Value at Risk for each supplier. This comparison can be very useful in supplier decision making.
Continuous improvement in supply chain operations is a key component in the future success of manufacturing facilities around the world, and yet there always will be an element of risk. Every manufacturer will experience glitches in their supply chain management system at one point or another. It is how you choose to manage these glitches that will ultimately decide your level of success.
The Michigan Manufacturing Technology Center regularly offers courses that include an FMEA-based Risk Assessment tool that helps identify the triggers of risk events, the importance of developing a plan to mitigate them when they do occur, and how to establish monitoring metrics and activities to be prepared for the inevitable. Search The Center's full course schedule here.
MEET OUR EXPERT
Lean Program Manager
Roger Tomlinson has been a Program Manager in The Center’s Lean Business Solutions program for 14 years. He has trained and mentored hundreds of Michigan manufacturers in the entire portfolio of Lean strategies and methods (e.g., Kaizen events, Standardized Work, 5S/Workplace Organization, Value Stream Mapping, Total Productive Maintenance, Culture Change, Team Building, operations management and process re-engineering). He is also involved in Transactional Lean Office, which identifies and eliminates waste in the office areas in a company.
Since 1991, the Michigan Manufacturing Technology Center has assisted Michigan’s small and medium-sized businesses to successfully compete and grow. Through personalized services designed to meet the needs of clients, we develop more effective business leaders, drive product and process innovation, promote company-wide operational excellence and foster creative strategies for business growth and greater profitability. Find us at www.the-center.org.