Focus on managing supplier risk for effective performance

Businesses are increasingly focusing on their core business activities. This is because globalization and increased business innovation have allowed the business to outsource all other aspects of its performance. The most notable aspect of outsourced performance is arguably the suppliers. This is because, for any business, especially those in the manufacturing industry, maintaining supply is critical to service and product delivery. It is for this reason that those involved in the administration of company supply are being forced to develop their own mechanisms for supplier risk management. These are incorporated into the already existing supplier management systems used to regulate supply. 

So what risks do suppliers face that the business should take an interest in? First, we have financial liquidity of the supplier. This is a traditional concern that has always existed. Companies have to take an interest in how well the companies that they source products from have managed their liquidity. This prevents supply from being interrupted because of financial problems.

Second, increasing insecurity and instability has become a factor for consideration. Companies now outsource their raw materials globally; if the raw material is sourced from a country that has shown signs of instability it could destabilize all of their production capacities. Furthermore, the increase in terrorism now means that businesses must also consider whether their suppliers are a supply threat or are secretly funding terrorist elements and activity.

The supply manager must incorporate the above mentioned risks when formulating a supplier risk management strategy. The supplier management system must therefore have the following structure. First, it must provide information on all the available suppliers a business can contract. These should then be pre-qualified which means that their financial stability is vetted. They must also be checked for their ability to perform. The method of determining ability to perform varies from company to company. Some companies make small orders test it, and other just check the mechanisms for delivery. This results in establishing a reliable supplier management system that the company employs. It enables the company to create a proper supply network that is resilient to change while being adaptable. At the basic level are the suppliers the company relies on a daily basis and on a higher level are the contingency suppliers. The company can use this information to develop strategic partnerships between it and suppliers that ensure that the business will be able to grow. This is necessary for long term sustenance and growth of any business.