Managing Supplier Risks and What to Look For

The 2020 COVID-19 pandemic illustrated the impact that unpredictable or even expected events can have on an electronics company’s ability to manufacture and distribute its products. Organizations of all sizes should thoroughly examine the variety of risks and vulnerabilities that may affect their supply network. Doing so is the only way to minimize disruptions and financial losses.

Accept the inevitability of the unexpected

The network that provides your components can be affected by incidents and circumstances beyond their control. If, for example, you are waiting for a shipment of Microchip Technology’s control devices that is destroyed by a container ship fire, everything that you do with those components will be adversely affected. Although there is nothing you can do to change the course of events you cannot control, you can put processes in place that will use intelligent forecasts to predict probabilities so that the ensuing risks can be managed.

Implement risk management planning

There are three distinct steps necessary in effective risk management:

  • Identify and prioritize potential risks. This involves collaboration among all stakeholders with knowledge of your supply chain, including the suppliers themselves. Once risks have been cataloged, they should be prioritized as high, medium or low, and then each should be delegated to a party or team.
  • Decide what to do with risks. With your priority measurements in hand, look at every supplier risk. Each team should determine whether it is critical and requires eradication at any cost or if it can be either reduced or tolerated in its current form.
  • Plan for the worst. This step addresses what you will do if a particular risk actually comes to pass as a catastrophic event. Your strategy should be detailed and transparent, with any concerns discussed during this planning stage. The last thing you want is for poor initial messaging to interfere with disaster recovery.

Never forget that your suppliers also represent their own level of risk, particularly in terms of the third- and fourth-party vendors with whom they work. The better your understanding is of the relationships among different tiers of suppliers, the more effective your risk management procedures will be.

In addition, sole-source suppliers represent their own unique challenges for your organization. Because they are your only avenue to the components you need, you are not in a position to jettison a company simply because it may represent heightened risk. However, you should make it your business to closely examine the vulnerabilities they open you up to so that you can reduce as many as possible. Conducting frequent site visits helps not only to identify risks but also opens the lines of communication to aid in reducing them.

You only have so much sway over your supply chain and the natural and human-made events that buffet it. However, you are not helpless. A robust supplier risk management focus will go a long way toward protecting your organization and ensuring that your products are made and distributed in a timely fashion.

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