Performance Risk


RISK IDENTIFIED

 

Source of Influencers

Internal
Poor sourcing strategy and screening techniques can lead to selection of poor quality, or inappropriate suppliers; this can also happen with poor specifications.

External
Even if the price is right, inappropriate or poor suppliers can damage the entire supply chain by failing to provide the right product, at the right quality, at the right place, at the right time.


 

Organisational Consequences

Operational
Poor supplier performance leads directly to operational delays; delays can lead to missed or late orders. The supplier may be unable, e.g. due to lack of funds or lack of access to specialised personnel, to respond properly to a business continuity incident.

Financial
Operational delays result in extra costs; cancelled orders result in loss of revenue, that can be a long-term loss if you lose customers; environmental failures may result in penalties. Does your supplier carry adequate insurance?

Reputational
A suppliers lack of agility will reflect poorly on your organisation; the external perception will be that you are not reliable performers. High profile delays can damage consumer confidence.


 

Sustainability Consequences

Social
Supplier may e.g. engage in poor working practices to try to resolve capacity issues.

Environmental
Poor performers may take the path of least resistance to get on track, and such shortcuts can lead to environmental failures, e.g. dumping waste.

Economic
Loss of customer confidence, and a poor reputation (as a result of supplier failure) increases your organisations own business risk.


Risk and Resilience

 

RECOMMENDATIONS

 

  • Encourage your key/at risk suppliers to participate in the CIPS Sustainabiliy Index, which will help identify any potential risks in this area
  • Review your process for recording accurate delivery information from your key suppliers
  • Ensure your goods receiving process does not build in delays that skew the actual received date
  • Use all available resources to produce useable data that accurately reflects supplier deliveries against required/promised dates
  • Review delivery failures with the relevant supplier as part of your regular buyer-supplier review activity, particularly focussing on any potential lack of available capacity within the supply chain
  • Initiate a regular (at least annual) review of actual supplier deliveries from the time of ordering, noting deviations from required and promised delivery dates, and regularly (at least annually) ask your key suppliers to update the lead times for the products/services you buy from them
  • Create the opportunity for your key suppliers to update you at any time should there be a significant change to their lead times
  • Develop a list of required skills/knowledge attained for each of your job roles and embed individual training assessments as part of any overall performance review
  • Develop internal awareness training activities that allow your team to better understand how your key stakeholders and peers undertake their particular roles and ensure your team can comfortably suggest training related activities for themselves and their colleagues as appropriate - use the available skills/knowledge within your own team as part of your training options
  • Consider teaming with other departments to jointly fund specific training activities as appropriate
  • Make training needs an agenda item on your weekly/monthly departmental reviews
  • Research potential internal and external training courses to meet your skills/knowledge needs
  • Use CIPS qualifications (levels 2-6) to provide a sound basis for individual development and advancement
  • Ensure you secure adequate budget to fund your expected training needs
  • Work with your HR specialists to ensure you have sound advice and conform to your organisation's overall training approach
  • Build-in appropriate screening questions that require current and potential suppliers to understand their approach to training and knowledge sharing
  • Take steps to understand the production process for all of your key/critical products and services
  • Develop a questionnaire that you can use selectively on key suppliers to understand more about their risk and resilience approach in respect of their specialist equipment
  • Include understanding an organisation's approach to equipment maintenance in your thinking
  • Build a review of their manufacturing equipment risk and resilience into any site visit activity
  • Build in appropriate screening questions that require current and potential suppliers to help you understand what steps they take to minimise the risk from critical equipment failure
  • Using your acquired knowledge highlight any suppliers products/services that give you cause for concern and formally request a supplier response
  • The key traits of an agile business are:
    • They ensure that executives and managers are fully accountable
    • They can prioritise strategic decisions
    • They can speed up decision making
    • They have prepared their business ecosystems to act quickly
    • They invest in and make more use of data and analytics to run the business
  • Encourage your category specialists to use all available external resources to keep abreast of changes in their key suppliers trading and technology environments
  • Take time to study how demand management practices can help an organisation cope with variable customer demands
  • Understand how your key suppliers manage customer demand and use this information to re-evaluate your ordering pattern and availability of alternative sources of supply where appropriate
  • Identify products that are sourced from intermediaries (typically stockists) and take steps to ensure your security of supply is being appropriately managed by the suppliers involved
  • Consider initiating an alert process with selected suppliers so that they provide you with an early warning if any key goods or services are likely to become in short supply
  • Ensure you are fully conversant with the recognised environmental certifications in the countries where you source key goods and services – including the international standard ISO14001:2015
  • Incorporate a question on environmental certification into your tender and pre tender questions for medium and large organisations
  • Ensure you check any certifications quoted are valid for that organisation and within their expiry date
  • Seek to understand the extent that your key suppliers invest in and make more use of data and analytics to run their business
  • Look to extract real examples of data analysis that have a consequential effect on the goods/services that you procure from them
  • Ask your key suppliers for examples of potential business challenges that have been well managed as a result of their data analytics activities
  • Understand which credit rating service your organisation currently uses to evaluate current and potential customers
  • Invest in an alert service for your most crucial suppliers that indicates any reduction in credit rating in real time
  • Use the skills available within your organisation to widen you and your team's knowledge in this area
  • Invest in appropriate training (maybe from the credit rating agency your organisation currently uses) - use external resources as appropriate
  • Invest in an alert service for your most crucial suppliers that indicates any reduction in credit rating in real time
  • Ensure your buying team are knowledgeable about how a failure in one of your supplier's environmental performance can have a consequential effect on your organisation
  • Consider questioning your current and potential suppliers in the following environmental related areas: 
    • Policy statement
    • Reduction in energy usage policy/performance
    • Reduction in greenhouse gas emissions
    • Water usage / controls
    • Sustainable sourcing
    • Waste management/reduction
    • Compliance with legal requirements
  • Encourage your category specialists to use all available external resources to keep abreast of changes in their key suppliers trading and technology environments throughout their supply chain.

 

FURTHER RESOURCES

 

CIPS Supply Chain Risk and Resillience Report

Supply Chain Risk and Resilience

Whilst there are numerous BSI and ISO standards developed for business continuity, risk management and organisational resilience there is no global benchmark that can be used to test and develop an organisation’s end-to-end supply chain resilience. The objective of this CIPS introduction along with the forthcoming good practice guidance and online tool is set to fill this gap. This will help procurement and supply management professionals support the survival of their organisations by identifying supply chain risks whilst protecting shareholders and the general public against the effects of disruption and malpractice.

Read the full report

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