In the current market, it isn’t a question of if your suppliers may be at risk of failing. It’s a matter of which suppliers will fail and when? We all know the risks posed by the recession - bankruptcies are up (+75% in ‘08 & projected rise of 35% in ‘09), credit is hard to come by, and consumer/business spending is extremely soft. Couple that with risk management challenges - fragmented supply base with varying degree of supplier capability, currency and commodity volatility and intricate pricing and discounting structures - and you can see why many companies are struggling with where and how to start a true risk management strategy.

Since companies can’t afford a major supply chain interruption at a time when they’re already struggling with the recession, what concrete steps must be taken to reduce global supply risk?

Assess the Situation. In order to effectively manage supply risk, you must first understand your exposure. To get an accurate picture requires action on a number of fronts, including:

• Analyzing the financial health and stability of suppliers using detailed financial information
• Obtaining proof of financial soundness through site visits
• Creating detailed supplier risk profiles to determine category and industry threats
• Examining commodity and underlying supply market trends to discern the potential impact of supply constraints and price fluctuations across top and sub-tier supply chains
• Investigating the stability of raw material supply and possible effects of trends such as market consolidation and capacity constraints

While key pieces of this task can be automated, it is critical to leverage supporting services and expertise to ensure you get the information you need to develop and execute a sound strategy to conquer your risk. As the saying goes, garbage in, garbage out.

Prepare a Plan B and C. As tough economic conditions persist, the odds that your company will face some form of supply disruption increase. To minimize the impact, you must be able to quickly discover, assess, and on board new supply partners, ensure their information is accurate and up-to-date and continually measure and improve their performance. Sounds complicated. But there are solutions on the market that will enable you to quickly and easily:

• Reduce the cost and time involved in supplier discovery and assessment - which can account for up to half of the sourcing cycle - as well as on-boarding and management so that as suppliers fail, new ones can quickly be identified and brought up to speed.
• Gain a 360-degree view into supplier information including contracts, quotes, performance, certificates, internal stakeholders and contacts.
• Access additional information, performance ratings, and alternative sources of supply.
• Speed supplier assessment and qualification by automating information collection and new supplier approval processes.
• Ensure proper supplier selection, measurement, and risk and performance management.

Invest in them.

In Part 2 of this series, we’ll cover managing your suppliers AND expectations. In the mean time, I recommend visiting our Supply Risk website for additional resources, including a CPO Agenda report, risk assessment tools and video interviews with several companies describing the role procurement plays in their risk management strategies.

Sundar Kamakshisundaram is a Senior Solutions Marketing Manager for Ariba, a global provider of spend and supply risk management solutions.