Paying attention to the smallest detail is critical if companies are to avoid disasters caused by the supply chain, a risk management expert has warned procurement professionals.
Andrew Leach, supply chain risk management consultant at Company Watch, told delegates at E-World Procurement & Supply Seminar in London this week how Boeing narrowly avoided suffering major disruption when a key supplier suffered financial problems.
Boeing was reliant on a single company to provide specialist sand used to help make turbine blades for an engine.
The small supplier, which had total annual sales of around £2m, was in “serious financial difficulty”, according to Leach.
He did not provide details of when the incident occurred or the measures that were taken, but told delegates that a recovery plan put in place succeeded in avoiding “any form of interruption of supply.”
It took between six and nine months to put in place an alternative supply chain, he said.
Despite an early warning system that was in place to detect problems with suppliers, Boeing had not spotted this problem before, according to Leach.
The episode prompted the manufacturer to review its process and take more account of risk at an earlier stage in the supply chain.
Leach told delegates that risk should be part of the sourcing process, enabling problems to be picked up sooner.
He emphasised the need to pay attention to all stages of the supply chain and not overlook smaller firms as “everyone has a ‘sand supplier’.”
Companies should do what they can to support their supply chains, argued Leach.
“If you pick it up early enough and if you work closely enough with your supplier you can ensure it doesn’t cause further risk to your customers down the line,” he said.
Which suppliers you decide to support and how depends on the nature of the supplier and the potential return on investment your company will receive by partnering with them, according to Leach.
Supply risk tools also have a role to play, which can help with issues such as mitigating against natural disasters and financial volatility.
The collapse of Carillion was a prime example of bad financial risk assessments, which the use of financial data could have prevented, he claimed.
“The balance sheets were showing visible financial risk, but the government and City failed to pick up on it.”
Leach added: “If you have the right tools then understanding the financial performance of the business can give you an indication as to its future reliability and its future risk to you as a customer.”
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