The need for Supply Chain Risk Management (SCRM) is exemplified by such debacles as the rapid increase in vehicle recalls by the automobile industry (over 50 million per year in the US since 2014) and the 2011 earthquake and tsunami that devastated Japan (over $360 billion in economic damage and disruption of the global supply chain in the semiconductor and automotive industries).
A supply chain is not static. Continual pressure to reduce the price in established markets forces enterprises to source globally. Breaking into new markets in rapidly growing economies forces companies to price goods at similar levels to local competitors and results in the need to manufacture and source locally. Thus there is a need for a continual process of discovering and onboarding of new suppliers. Managing supplier visibility and risk can be broken down into two processes.
- Supplier qualification and on-boarding
- Supplier Management and Development
First, it is important to select new suppliers that have a high probability of delivering their product or service on time, with high quality and at the appropriate cost. Secondly, managing and measuring suppliers is critical. For example, managing suppliers during the design process require maintaining version control as well as having traceability on collaborative exchanges between OEM and supplier. This collaboration enables technical issues to be addressed and cost to be reduced up front, prior to tooling and manufacture. It is not sufficient to identify problems after they‘ve happened! Finally, it is important to work on continuously improving suppliers, for example, to reduce cost or improve quality over time.
Supplier Qualification and On-Boarding
Processes for identifying potential new suppliers, qualifying, and onboarding them quickly have to be designed with a careful balance between speed, cost, and risk. Supplier identification and qualification is a process of gathering input from as many potential suppliers as possible and filtering down to the most promising new suppliers without incurring a significant cost. A typical qualification process will be based on one or more questionnaires with evaluation criteria which may give the successful prospective suppliers a probationary supplier status before a more in-depth analysis probably involving site visits to perform various audits.
Supplier Management and Development
The supplier management process uses cross-functional key performance indicators (KPIs) to measure and classify the supply base. Supplier management tools used a balanced scorecard typically based on KPIs for design competence, quality, on-time delivery, technology and cost to give a supplier an overall classification. Once suppliers have been classified, business rules can be enforced to only allow purchasing from approved or preferred suppliers. By segmenting the supply base in this way, supplier development programs can be targeted at suppliers that can return the most value.
Stay tuned for my next article: Supplier Risk Management Best Practices to learn how you can stay on top of your supplier cost objectives and reduce supply chain risk.
In the meantime, check out our other blog posts on Supplier Collaboration!
About the Author:
Steven Heutlinger is a Siemens PLM Software Solutions Consultant, with expertise in Supplier Integration solutions. He has been in the PLM industry for over 15 years