Supplier Risk Assessment Best Practices

November 12th, 2008 at 06:23am Charles Dominick, SPSM - Next Level Purchasing

Today’s headlines are full of natural disasters and financial failures. The risk of a supply chain disruption has never been more real. It’s your responsibility to help predict and prevent supply chain disruptions, so here are a few best practices you can employ to assess supply chain risk when evaluating prospective suppliers.

Make Supplier Risk Assessment Part of Process – You never know where a disruption will occur so all suppliers must undergo some level of risk assessment. Create both short- and long-form risk assessments so the appropriate level of diligence is performed. Geography, political situation, and financial stability are just a few of the factors that must be assessed for each supplier.

Know Your Critical To Operations (CTO) Spend Categories – To be sustainable, you’ll likely have to prioritize your supplier risk assessments. Use your long-form risk assessment for all prospective suppliers of CTO categories and for all suppliers who failed the short-form supplier risk assessment.

Go On A Field Trip – Site audits are critical in supplier selection for CTO spend categories. You simply can’t rely on second hand information when evaluating these suppliers. Go see for yourself.

Understand Your Supplier’s Supply Chain – Does the prospective supplier procure raw materials from the same source as your old supplier? Does he have a risk assessment system for his suppliers? Understanding and examining his supply chain up front can prevent supply disruptions later.

Create An Early Warning System & Contingency Plans – The trick is to identify the factors that can change your supplier’s risk levels and monitor them before they cause a supply chain disruption. Companies like DnB and Equifax offer services to help monitor changes to supplier risk profiles. Remember, the best way to deal with supply risks is to prevent them.

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Entry Filed under: General, Global Supply Issues/Risk, Supply Management Best Practices