Author: Dr. Stephan Hofstetter, Partner at Kloepfel Consulting.
In this overview, we summarize the six fundamental steps from risk analysis to countermeasures for mitigating supply risks and a contingency plan in the worst-case scenario.
Step 1: Identify and assess potential risks
The risk analysis should be conducted based on product categories, suppliers, and countries in order to derive structured measures for risk management. Evaluate relevant risks in terms of their likelihood of occurrence (low, medium, high) and the potential impacts (low, moderate, severe) on your organization. Focus risk management measures on the most probable risks with high damage potential.
Step 2: Address critical risks
After identifying the critical risks in the risk matrix, you should develop measures to address these risks in order to avoid, reduce, or mitigate them. Consider the measures recommended in the article “Geopolitical Risks – Challenges for Supply Chains & Possible Solutions” for this purpose.
Step 3: Implementation of the action plan
Implement the measures listed in the action plan, prioritizing them according to product category or suppliers. The necessary resources, budgets and responsibilities should be clearly assigned. Clear and achievable milestones should be set. Inform your customers regularly as well as transparently about their contingency plans and risk management strategies. The qualification of a second supplier would be a typical measure.
Step 4: Keep an eye on leading indicators
Monitor indicators on key procurement topics regularly to ensure that critical developments are identified in good time and averted appropriately. Visit your suppliers regularly to track their business situation and identify undesirable developments. For example, you would identify a utilization or succession problem.
Step 5: Create a contingency plan
Work with your suppliers to develop realistic contingency plans to ensure that alternative approaches take effect in critical situations and ensure supplies are available at a reasonable cost. These contingency plans must not gather dust. They must be reviewed and updated periodically.
Step 6: Test your contingency plan
Test and evaluate your contingency plan periodically with stakeholders, your suppliers and customers to ensure it is working. When in doubt, update it. Specifically, such as who would participate on the task force and how would they work together.
Part 1: Geopolitical risks – challenges for supply chains
Part 2: Measures to address supply risks
Part 3: Checklist: 6 steps to avert supply risks
Risk management in procurement
On this topic, Kloepfel Consulting offers you risk analyses, the development of concrete methods and measures to deal with risks, as well as training courses and workshops.
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Contact Dr. Stephan Hofstetter, Partner at Kloepfel Consulting, for a first phone call or web meeting by e-mail s.hofstetter@kloepfel-consulting.com or by phone +49 211 941 984 33