Jun
27
Managing risk within the sourcing process
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We all know the risk management is one of the most important aspects of supply chain. The impact of failing to capture risk and then mitigate it can be uncomfortable at best and kill companies at worst. There are many facets to managing risk effectively as it can come from many areas within the supply chain. One of those key areas is within the sourcing process.
Resultant issues caused by the sourcing process can not only cost organizations the obvious financial penalties but also damage brands (and career prospects!!). If that isn’t bad enough failing to identify risk during sourcing can result in supply chain volatility and disruption across the supply network. As such it’s vital that risk is taken into account during sourcing activities.
While risk management is a fairly simple concept in execution it can be highly complex with many variables to consider. However, the basics of the risk management process is a tried and tested technique with a methodical process that once people have been trained in can be easily deployed.
From my experience, part of the problem is that within the sourcing activity it is not something that should be looked at during the start or the end of the process but should be an ongoing continuous process.
In many businesses, suppliers tend to be vetted once at the point of sourcing and then left alone to their own devices, this can leave the buying organization exposed to issues that arise later on.
The benefit of a procurement risk management process
The key, of course, is having a risk management process that is firmly embedded within the supply chain process suite. Unfortunately, we supply chain professionals tend to focus on the sexy stuff like KPI’s, supplier selection and contracts methodology. Unfortunately, risk sometimes becomes an afterthought.
When looking at sourcing one of the obvious places to embed risk management is at the point of onboarding the supplier. At this stage, it’s vitally important that you have adequate monitoring and sufficient transparency so that stakeholders engaged in the sourcing process are aware of any risks and can cooperate in the mitigation process (this includes the suppliers themselves).
When you do have the right process in place, managing risk doesn’t have to be difficult, as we stated above the risk management process is well established and there are suitable checks that can be made which are specifically appropriate to supply chain.
Risk management requires mitigation effort and of course, not all suppliers are equal in terms of their criticality and for those supplying products that are easily resourced within the marketplace the business might prioritize resources to help manage suppliers which offer more critical expertise or specific niche products.
One of the key problems is that risk management in the sourcing process often gets undertaken at the outset of supplier onboarding and then doesn’t get touched again. However, where a significant length of time has gone by since onboarding, issues may have arisen that if not managed will go unchecked, this can often lead to disastrous consequences on what was thought to be secure sources of supply.
Ongoing business reviews offer the ideal opportunity to solve this problem and offer the right environment to review risks and mitigation activity as part of the ongoing relationship.
Of course, the risks associated with sourcing is just one aspect of supply chain risk and there can be many other facets to consider in areas like production planning, logistics, and operational areas these areas too will require similar capture and mitigation processes.
Have some thoughts on sourcing risks? We’d love to hear your comments in the section below.
Jun
22
Does your supply chain learn from its mistakes? 5 key steps towards continuous improvement.
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How often do your Supply Chain team just repeat the same old same old. We all tend to see the same issues time and time again but do we actually do anything to resolve it. All too often the Supply chain tends to be whipping boys for deep-rooted problems within a business that prevent it from being effective, however, it’s important to remember that we can, as a function look to introduce improvements to be both more efficient and effective.
Basic principles of Continuous Improvement
Continuous improvement methods such as Kaizen are prevalent in manufacturing circles but service functions can sometimes be slow to adopt often making the mistake that these great practices are not portable to service processes.
A continuous improvement plan doesn’t need to be complex it simply needs a process that allows you to do 4 key things.
Plan – What are you setting out to achieve and how will you do it?
Do – Execute your plan
Check – measure your performance on your plan
Act – implement some actions from your review of performance.
One of the most important things (surprisingly neglected at times) is to set yourself a plan and objectives – for example this might be halving the inventory levels – it might be improving schedule adherence or it might be to halve customer rejects whatever the objectives are documented them in a plan, with measurable targets and timescales.
You’ll also need to consider two key ingredients –
1. A standard process (that people are supposed to follow)……and
2. Measurable data.
The whole point of CI activity is to base your actions on facts and data and not just knee-jerk reactions of what you think might fix it today. Continuous improvement programs invariably get results because they follow a process
So, looking to get started? Here are 5 tips for continuous improvement in a supply chain environment.
1/ Use KPI’s for what they are meant for –
Most (if not all) business use some form of key performance indicators. KPI’s are great but they should form part of the Check element of your PDCA process and you should not just look at them and then let them gather dust but you should look to use them as the basis for your action plan.
2/ Listen to feedback
Another often overlooked input into improvement is to simply listen to what your supplier network is telling you. No doubt you have supplier business reviews? If so make them work for you – don’t just use them to beat up the supplier but use them to also get constructive feedback on what issues you as a customer cause and what you can do to improve the supplier’s performance. This step alone can generate some hugely significant ideas (often ones you might not have considered).
3/ Document your processes
If you’re looking to improve – make sure you capture what you do now. Have you got your processes standardized and documented? Does everyone know what they should be doing and when? This should be seen as one of the first steps in improvement.”
4/ Look to implement a culture of continuous improvement
Once you’ve got your processes documented and the whole team is working in a standard way the next step is to encourage improvements. Continuous improvement is not a one man job and your whole team needs to buy into the principle. An army of improvers can achieve great things! Following simple programs like PDCA doesn’t have to be complicated and should be envelope the whole team.
5/ Set objectives
It seems obvious but set yourself targets. Don’t over-reach but don’t make them too easy either. In your plan, set out what you want to achieve and by when and then religiously measure and analyze. Without targets, your department will probably drift along aimlessly chewing around the periphery of issues without ever really grasping at a coherent plan to improve. Objectives focus everyone’s attention.
There are countless other things you can do to deliver improvements but the above should get you started and is a simple enough concept to flow out to your team. As a final step, remember to be selective about your improvement steps – look to deliver on achievable improvements that will deliver results. Don’t waste your time and focus on issues that might not deliver significant improvement return. Remember it’s your time and resource you’re putting into this so you want to make sure you get an appropriate rate of return from the effort.
Have some feedback on continuous improvement within the supply chain? We’d love to hear about it in our comments section below.