launched Aravo Risk, a new application to
help large corporate buyers manage risk
within the supply chain, he says. Suppliers
are asked to self-offer and self-maintain the
information via the Web. Aravo consolidates and provides the information to its
customers along with the ability to analyze
the data in an automated fashion. “The
result is a set of scorecards and risk rankings and ratings that show where the risk is
within that supply chain,” Albinson says.
“Users of the data can identify which suppliers need help and what can be done to
help them improve,” he says.
Corrective Action
Once a supplier is identified as being in a
lower ranking group, automatic work flows
drop them into new groups for additional
training or other assistance. “We call these
corrective action work flows,” says
Albinson. “It monitors the suppliers to see if
they are engaging with you to do the work
and to change their practices. If they are
unresponsive, you can start to manage
groups more closely, but at this point it is a
very small percentage of your suppliers.”
Albinson highlights the fact that Aravo
lives on the internet. “Being Web-based
means that it is not expensive for companies
to get into it and they can be up and running
in less than six months,” he says A company
like GE with half a million suppliers “can’t just
go pull some files out of a cabinet and figure
this out. They need a supporting technology.”
Sue Welch, CEO of TradeStone Software,
Gloucester, Mass., agrees. “You cannot control this with spreadsheets and e-mail anymore,” she says. And without control, “you
are really risking your brand, which means
risking your company.” TradeStone offers a
range of solutions for retailers that produce
private label merchandise. “Because we go
broadly across the entire transaction from
design to delivery, we are always looking
for key indicators that tell us if a factory is in
trouble,” she says. “Maybe they have missed
their audits or failed some inspections or are
late delivering.”
TradeStone Supplier Management
tracks a number of such indicators as well
as making sure that all of a factory’s
required certifications are renewed on a
timely basis, says Welch. “This is something
that often falls through the cracks,” she
notes. The software monitors the specific
conditions for which a factory must be certified and automatically schedules periodic
factory visits. “We monitor both regulatory
and safety visits as well as monitoring performance in terms of product quality and
timeliness,” she says.
UPS Supply Chain Solutions’ supplier
management application also helps users
plan events automatically “without being
dependent on somebody’s memory,” says
Tim Boike, vice president of supplier management. “We automatically notify inspection companies when a factory is coming
up for audit and we automatically assess the
results of those audits,” he says. “That information is then integrated with safety and
design requirements and with purchase
orders, so it really becomes a fully integrated, interwoven process.”
Boike notes that Atlanta-based UPS
SCS has offices around the globe. “In all
places where our customers are manufacturing, we have trained dedicated staff to
monitor and measure the compliance of
vendors and to help in other ways,” he
says. “We are able to act on our client’s
behalf on foreign soil to make sure a manufacturer is doing what it is supposed to
be doing, when it is supposed to be doing
it, and that it is producing the right quantities and quality levels. Our hammer is that
we stand between that vendor and payment from our customer.”
While nearly all risk assessments are
focused on supply disruptions, Dalip
Raheja, CEO of the MPower Group, says
disruptions are only how risk manifests—
they are not its cause. “The risk we should
be talking about is far broader than supply
disruption,” he says. “Many risks contained
within a company’s four walls have a
tremendous impact on the supply chain
and should be incorporated in any risk
assessment model.” For example, he says,
the lack of an adequate and dependable
demand forecasting process poses a far
greater risk to a supply chain’s ability to perform than does a supply disruption. “Many
would argue that a lot of supply disruptions
are caused by poor demand forecasting
processes,” he notes. “So companies need
to look at internal factors that are causing
risk and clean their own house before looking at their supply base.” MPower is a consulting and professional services company
based in Oak Brook, Ill.
A recurring trend in supplier risk management is to segment the supplier base,
but risk segmentation requires a different
approach than traditional segmentation,
says Rodysill. “Traditional segmentation is
focused on reward—identifying suppliers
with the biggest spend and the biggest
opportunity for cost cuts,” he says. “That
segmentation model doesn’t work in risk
assessments. With risk, you stratify folks in
a different way, and mom and pop suppliers might rise to the top. It might be your
smallest supplier that provides the washers
that you have to have to finish assembly.”
“We see more advanced companies trying to align around the things of greatest
value to the organization, which usually
translates into a product line or set of
SKUs,” says Gary Lynch, practice leader of
global supply chain risk management at
Marsh Risk Consulting, New York. “
Suppliers that produce that thing of greatest value
are where they really want to focus by looking horizontally across the supply chain
and qualifying and quantifying the impact
of potential risks,” he says. “Once you
understand the impacts, you can start looking at alternatives for mitigation and at what
sort of investment will be required. You end
up with a portfolio of solutions against that
particular product.”
Plan B
Bob Anson, senior director of supply management at i2 Technologies, Dallas, agrees
that having good insight into product content is important. “This should include how
widely a particular part is used across multiple products, how many vendors are available or how important the part is relative to
the product as a whole. Risk exposure is not
limited to the most expensive or highest
volume parts,” he says.
This type of understanding is critical to
having a viable Plan B, says Pieri. He notes
that contingency planning should involve a
multi-functional group that asks critical
questions. “If this supplier is 60 percent of
our supply and it goes down, what do we
do in operations? How can we ramp up
another supplier? How can we help the
supplier that is down get back up?”
CSC coaches companies to create supply chain maps that are weighted toward
certain event probabilities, says Miller. “The
events most companies care about are the
ones that will cost them the most, so they
need to take a critical look at all the things
that could go wrong, then think about how
they could be prevented or mitigated.
That’s the only way to have confidence that
you can deal with disruptions if they occur.”
