@Risk

These days, supplier risk is emerging as a top business concern. Companies are turning a critical eye on their suppliers hoping to get a handle on thorny questions about financial viability, price, scheduling, workforce issues, compliance, etc.

But in the midst of all this supplier risk analysis, it’s critically important to remember one significant detail: your suppliers are eyeing you right now, too. They’re weeding out poor customers, eliminating headaches, and mitigating risk from the perspective of sell. Of course, no one wants to be caught off-guard– especially in today’s business environment. So, if you haven’t done so recently, it’s time to take a look at a list of your critical suppliers and ask yourself a few probing questions, such as:

• Do you know (with assurance) which suppliers consider you a desirable customer? For instance, which ones are most reliant on your business?

• Do you have healthy relationships with these suppliers? Are there specific relationships that need improvement?

• What would happen to your organization if you lost a critical component, not because the supplier couldn’t supply it, but because the supplier simply chose not to? Or, in other words … What would be the impact on your operations if a critical supplier fired you?

A few days ago,  I was talking with Pierre Mitchell, senior director of procurement research at The Hackett Group, and he shared some insights into this very relevant –albeit slightly less trendy –aspect of supplier risk.

“Everyone’s thinking about supplier risk, but you can’t forget that suppliers are stressed right now, and they’re making choices, too,” Pierre said. “They’re segmenting buyers, looking at channel profitability, researching customer profitability –and in general, they’re using technology that’s much more advanced than we have on the procurement side.”

Think of it from the supplier’s perspective. Are you a buyer who exposes them to too much regulatory risk? Maybe you’re pushing payment terms too hard? Perhaps fulfilling your contracts just isn’t profitable enough?

Supplier risk management involves mitigating supply chain disruption. Those disruptions may occur because a supplier can’t supply a component, or they could happen because a supplier won’t supply a component.

“If you’re not a desirable customer right now, a supplier may decide that ‘you’re out’,” Pierre said. “Basically, they are hunkering down, and they’re going to focus on their core customers, the ones that are the most profitable –and you might not be in that camp.”

What can you do to prepare your organization for the potential of losing a key supplier? Are there ways to prevent your company from being fired? According to Pierre, it all boils down to having good information (intelligence) and building strong, collaborative relationships. (For tips to get you started, I suggest reading Jason Busch’s recent post about “flirting with your suppliers”). I’ll talk more about these risk mitigation steps in tomorrow’s post.