Operation management “segment your suppliers to reduce risk”

“Segment your suppliers to reduce risk” by Michael Giguere & Glen Goldbach

(Q3 2012 issue - CSCMP's Supply Chain Quarterly*)

Presentation by - Kumar Pallav

*Source: http://www.supplychainquarterly.com/topics/Global/20121001-segment-your-suppliers-to-reduce-risk/

Table of Contents

- Reasons of failure and risk related to the suppliers

- Approach: risk management & segment suppliers

- Categorization of suppliers & monitoring requirement

- Leading practices under the risk management- Q & A

April 7, 2023

Reasons of failure and risk related to the suppliers

Risk related to the

suppliers

failure

Fewer revenues

Lost customer

Delays in delivery

Loss of good will

Disruption in supplies

Economic

Political

Natural Events

Approach: risk management & segment suppliers

Solution

DisruptionSupply Chain

Risk Management

(SCRM)

Segment Suppliers

Categorization of suppliers & monitoring requirement

• Most valuable and required to develop forward-looking signalsStrategic

• Ongoing performance monitoringTactical

• Receive supply at the promised priceTransactional

Leading practices under the risk management

• Segmenting company’s supply base and basing governance agreements on a supplier's role

• Effective due diligence watch in place - identify leading risk indicators and risk-adjusted prices

• Conduct survey to identify specialized nature of the risks associated with each supply segment for a respective industry

• Risk analysis of potential weak links - suppliers is itself dependent on the same upstream supplier for certain aspects:

- Intellectual property - Outsourcing - Transportation

Leading practices under the risk management

• Customized requirements and incorporating supplier-governance policies

• Implementing risk mitigation plan by differentiating critical suppliers