Supplier Risk Management for Metals Buyers

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". . .should companies conduct preemptive monitoring of suppliers on the front end?"

Every now and again we like to examine some of the broader emerging sourcing trends. Of recent interest (and perhaps a little controversy), the subject of supplier risk management has spurred a debate over whether or not "supplier risk research is a waste of time." In other words, should companies conduct preemptive monitoring of suppliers on the front end, or re-deploy those resources toward developing contingency plans and alternative strategies on the back end?

I think companies ought to focus on the former. I'd argue a mix of both probably makes the most sense for most metal-buying organizations. Consider a few of the following points:
  • Which of key suppliers (and therefore customer accounts) are most at risk?
  • What types of risk are we tracking for our suppliers?
  • What is the probability of a financial failure on their part, and how does this affect our supply chain?
  • If disruptions occur, what are the proposed contingency plans?
  • How quickly can these plans be put in place?
Some up-front risk monitoring makes sense. But we'd argue the real risk in "supply risk management" relates to the development of contingency plans. Who can re-tool on a moment's notice? How can the buying organization ensure continuity of supply if a key supplier goes out of business?

Rather than choosing one side of the debate, start with this question—which of our key suppliers are most at risk? For key metals categories, map out on a 2×2 matrix supply risk on the X axis and degree of impact on the company (in dollar terms) if that supply source went out of business (or some other supply disruption). Any category in your upper-right hand quadrant deserves the consideration of a detailed contingency plan.

Not to lose the message on the balance of the three quadrants, having a supply risk monitoring program for the remaining categories and suppliers makes sense. Creating a strategy and process combined with a technology to constantly monitor supply risk can form the basis of a strong supply risk management program.

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