7 Common types of Risks for your Supply Chain

There are multiple risks in the Supply Chain and as I always say, as long as one manufactures or buys, risk starts, and of course the worst risk is not knowing. But commonly and overall there are some important, I would mention eight common risks that one can find in the supply Chain

First and most important is the financial risk, which includes the possibility of your suppliers going into bankruptcy. This risk is more often than one might think and it is often too late detected. As a contingency of this risk, obvious activities include evaluation of supplier situation along with specific follow up on a viability plan. As a prevention I strongly recommend to track your suppliers financially with a credit company regularly and have open discussions with them

Second important risk (same level of criticality the before) is the supply chain risk. Risk on deliveries, to say frequently or suddenly stop / mis-deliveries of your suppliers. This risk is very tricky since it might not reflect directly the origin of the problem and has multiple origins: quality issues, efficiencies in the machines, no management, etc.. and has a really high impact in your company if it is not quickly detected and escalated/solved. The contingency for this risk involves strong and detailed follow up on supplier deliveries asking why why why any delivery misses quantities/timings until the problem is highlighted and addressed. Continuously misdeliveries, do worry about it and go and see. Preventive actions for these risks involve good program Management, follow up in the deliveries, good supplier evaluation and common followup with your suppliers.

The third and also high risk is the wrong supplier selection associated to a risk in Process and technology.  This risk is commonly associated to choosing a wrong supplier to high demanding specifications. This risk ends up in complications and it is crucial here how fast one can detect this risk and fix it. But it is easily detected with strong discussions with suppliers that involve quality and technical issues that do not move ahead. In the end supplier gets upset with customer for high demanding and vice versa. The contingency to this risk is a bit complicated and involve engineering / quality / development resources which end up being costly to the company. As a prevention I always recommend a strong supplier selection process that involve challenging suppliers on technical aspects.

Fourth risk in the supply chain is associated to design risk. This is the most dangerous risk, not only because involves deep activities by multiple parties to solve it, but because nobody likes to admit mistakes in design (customer, company and supplier commonly share the guilty) and because it is sometimes hidden in quality issues. Contingency of course requires a lot of attention on the root cause analysis of the quality issues and feed backing engineering and development departments. As a preventions I always require suppliers to be challenged on technical aspects and if they are not able to speak the same engineering language, out. No supplier selection.

The fifth risk on the supply chain is the legal risk. This risk is commonly associated with lack of contactual relation between parties. By not signing the regular contracts supplier-customer we incur in a risk. The most important are the terms and conditions, master supply agreement and quality agreement, in this order. May any time one had a big quality  or delivery issue, having signed contracts would cover the negotiations in many aspects. As a contingency, quick reaction on signatures and negotiations can be done, as a preventive, never accept a new supplier without contracts and use your milestones in the companies (like first parts approvals) to pressure your suppliers.

The sixth common risk in a company is the product liability risk. This risk is always associated with big quality issues that involver either replacement of big costly quantities of parts and/or labor cost associated to this replacement. It is much more important that one thinks and can save a company from falling in a big issues. Not everything in insurances is clear, but main topics are to have clearly stated the word product and assembly/disassembly, having both on separate polices and to a maximum coverage of 10 million euros. There are more details like franchises to be considered. Contingency in cases of big issues is difficult unless we as a company have a policy that might involve insurance of suppliers at risky situations. Prevention is always in supplier selection and there are specific polices for these purposes in mostly insurance companies.

Finally last but not least the risk of corporate social responsibility (CSR). This one involves the risk of suppliers not fulfilling ethical, environmental, safety, child labor, among other human rights.  This risk obviously requires immediate contingency to any of the above mentioned risks and supplier replacement if necessary and as a prevention I urge companies to have a strong social corporate responsibility program in the company fighting for a better world.

As a conclusion one can see from the above risks are quite differentiated and include specific actions on contingency and prevention in different areas of the company. Therefore it is commonly usual in companies to have a risk management strategy on suppliers and action plan as a global activity and reporting to Management. And remember in risks, it is always too late and prevention is always worth!.

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