How To Conduct A Thorough Risk Assessment Of Your Suppliers During Coronavirus

In this five-part series, PASA explores different aspects of supplier management and how to navigate them during the ongoing coronavirus pandemic. Who is being impacted the most, how do you protect your supply chains, what are the best ways to manage your suppliers and what precautions should you be taking?

In part one of this series, PASA outlined the key issues at play when it comes to keeping on top of your supply chain.

In part two, PASA explored how supplier contracts are affected by coronavirus.

In part three PASA explored ways procurement might support their diverse suppliers and SMEs during the coronavirus crisis. 

In part four PASA advises on how to create a risk assessment of your suppliers during the coronavirus crisis.  

The rapid spread of coronavirus and its ever-growing impact on the world demands that procurement and supply chain professionals conduct ongoing risk assessments. For example, if a critical supplier is likely to go bankrupt or be mandated to temporarily cease operations, you need to know about it before it happens so you can establish a robust contingency plan.

Firstly, it’s important to establish how your organisation defines risk.

Are you concerned that certain suppliers could go bankrupt in the coming months?

Is it possible that some suppliers won’t be able to fulfil deliverables as stated within your contract?

Perhaps you are primarily concerned about the risks faced by your diverse suppliers and SMEs and what you can do to help them?

Does your extended workforce, including consultants, contractors and temp workers, have the capabilities to work from home whilst offices around the world remain closed?

What about logistics and shipping delays? How will raw materials make it to your manufacturing facilities and beyond? Will products continue to reach your final customer on schedule or do you need to prepare for significant delays? As logistics businesses increase their prices, the risk of running up significant incremental costs is also highly likely.

There are three crucial steps you should take to manage supplier risk in the coming months.

1. Conduct an initial risk assessment

Perform an initial risk assessment of all suppliers to identify those who are most likely to be impacted by coronavirus. Carefully consider which assessment provider you should use. There are lots on the market that specialise in different aspects of risk including Risk Methods, Rapid Ratings, Credit Risk Monitor and Z2. Depending on the size and scope of your supplier portfolio, you may need to invest in more than one provider.

If your organisation doesn’t have the budget available to assess how all suppliers are currently affected, you’ll need to find a way to prioritise. For example, you might focus on your top-spend suppliers, those who support your critical business processes or critical work flows (such as payroll or utilities providers) and your diverse suppliers.

2. Cross-reference risk assessments with category intelligence

Following these initial risk assessments, obtain insights from your category teams to validate your findings.

For example, your risk report might draw attention to a high-risk construction supplier. However, as any procurement professional knows, there’s always a lot of risk associated with the construction industry, global pandemic or not. Do not automatically take the information given by your risk assessment provider as fact. You need the insights, opinions and experience from the people within your organisation who are actually dealing with these suppliers day-to-day.

3. Decide on a contingency strategy

Once you’ve completed steps one and two, you should have successfully identified your most at-risk suppliers. Now you will need to decide how to both manage them and mitigate the impact on your organisation.

For diverse suppliers and SMEs (the most susceptible to being heavily impacted by today’s ongoing risks), it’s worth reaching out to check in and see how you can help.

For high-risk single source and critical workflow suppliers, act quickly to prevent major disruption to your organisation. Be sure to understand their business continuity plans and figure out how you can work with them to ensure your expectations are met. At the same time, prepare for the worst-case scenario. This includes looking into alternative supply options. If an existing supplier goes bankrupt, how quickly can you onboard a new supplier, how much will it cost, and how will your customers be impacted as a result of delayed production?

At this time, be sure to continuously monitor your high-risk suppliers and perform regular risk assessments of your entire supplier portfolio.

In the final part of this series, published next week, PASA will explore the best ways to work alongside suppliers to develop a business continuity plan.

Interested in learning more about managing risk? PASA Connect members will gather for a virtual meeting on Tuesday 28th April from 9.00am to 10.30 for a session titled:

Managing risk in the industrial supply chain for heavy engineering and capital equipment deliveries.

Facilitator: Tiarnan Rafferty, Industrial Procurement Specialist, Pareto Toolbox.

Find out more at PASA Connect: https://www.pasaconnect.com/