No matter how well organised or planned your purchasing and supply operations are, as the earthquake in Japan and the volcano in Iceland earlier this year clearly demonstrate, there may be occasions when it is impossible to foresee certain circumstances that may significantly disrupt your existing supply chain and cause major problems for your organisation – in the worst case scenario, putting you out of business!
These cases clearly indicate just how essential it is for all organisations, large or small, to assess and manage their purchasing and supply risk on a continuous basis, and have in place appropriate contingency plans.
It is essential for your purchasing and supply team to be prepared in case the unexpected happens.
So, with this in mind, Philip Robinson, Cambridge Professional Academy’s lead CIPS tutor, has come up with some top tips suitable for any organisation to assess risk and equally importantly, have a plan in place to effectively manage the risks identified:
1. Does your purchasing and supply team understand the full supply chain of your business? If you simply focus on first tier suppliers then you will not have a understanding of the full knock-on effects that you may experience, these are not immediately apparent if you just focus on the first tier suppliers.
2. Linked to this question, is does your purchasing and supply team have full transparency of the supply chain? A simple test you can apply here, is whether your team can map it out on a single sheet of paper?
3. What communication processes do you have in place that keeps the management team aware of events that can destabilise the supply chain? I usually refer to the ‘supply chain sensing’ capabilities of the organisation, which is very much dependant on effective communication systems operating right across the supply chain.
4. For those components/materials that are classified as ‘strategic critical’ or have limited supplier alternatives, has the organisation a partnering relationship in place with these suppliers? Quite simply, if supply difficulties occur, the closer and the more effective the relationship is with key suppliers, the more responsive and effective your supply partners will be in helping you manage these challenges .
5. Does the purchasing and supply team undertake formal risk assessments on the vulnerability of the entire supply chain on at least an annual basis? If not, make sure this process is put in place.
6. As part of the risk audit process relating to supply management, does a contingency plan exist considering both the short and longer term perspectives, and have team members been trained in its implementation?
7. How often is the contingency plan (if it exists) reviewed and updated? It should be reviewed by senior purchasing and supply management on at least an annual basis.
By simply observing and considering these tips you would be in a better position to minimise the impact of the risks that surround your organisation. This is particularly important when one considers that many of these are beyond your control and can have a very significant impact on your organisation’s operations.
All of these tips are included in the Chartered Institute of Purchasing and Supply qualifications. For more details on these please visit our purchase and supply course section.
