@Risk

Yesterday I introduced you to supply chain guru Pierre Mitchell, from The Hackett Group, and we discussed the importance of considering supplier risk from another perspective, namely the perspective of the seller/supplier. I encouraged you to start asking what may, at first, seem like difficult questions, such as:

• Do you know which suppliers consider your company a good customer? Are there any that don’t?

• If you’re not a customer of choice, is your company at risk of losing a key element of its supply chain? What can you do to mitigate this risk?

According to Pierre, the way to go about formulating answers to these questions is to work your way though some strategic exercises. Sit down with a list of your top suppliers. Use the list as the basis for some strategic simulations, including reverse supplier scorecards. Leverage the existing processes you already have for information (start with data about supplier management, supplier measurement, and site audits, e.g.), and pay attention to the specific details that can help you better understand how important you are as a buyer to each supplier.

• What percent of each supplier’s revenue does your company represent?

• What is the balance of trade between your organizations?

• Consider your competitors, too. What other companies are competing for your suppliers’ business?

Once you have worked through these strategic exercises, you may discover that you are not, in fact, a customer of choice for a particular supplier. That means your company could be at risk, and you need to: a) work on contingency planning; b) improve your relationship with that supplier; c) both.

Ultimately, mitigating this aspect of supplier risk depends on nurturing close, collaborative relationships with your key suppliers. As Pierre discussed in yesterday’s post, right now, suppliers are segmenting you as much as you are segmenting them, so you need to make sure the lines of communication are open and frequently accessed.

“Remember: Supplier risk is much more than supplier viability. It’s about the viability of your relationship with your supplier,” Pierre stressed. “It needs to be a healthy relationship, and you need to take leadership and be proactive about asking questions and finding answers.”