Supply risk comes in many forms. You can mitigate one type of supply risk but be victimised by another. The following supply risk checklist, from Next Level Purchasing, can help you identify and prevent common risks of taking on board a critical new supplier.
1. Research the supplier’s reputation.
2. Evaluate the probability of the supplier going bankrupt or experiencing financial challenges.
3. Uncover any supplier plans for new machines, new systems, re-organisation, etc., that could hurt short-term efficiency before productivity gains take hold.
4. Investigate how a safety issue (e.g. fire, explosion, accident, etc.) might disrupt supplier production.
5. Evaluate the likelihood of the supplier’s quality performance not being within acceptable limits.
6. Evaluate the probability of supplier delays (e.g. researching process control, capacity scalability, historical reliability, etc.).
7. Evaluate the probability that the supplier will try to renegotiate pricing owed to input cost increases.
8. Research the probability of port closures and container shortages for ocean shipping, if applicable.
9. Evaluate the probability that the supplier will covertly use prohibited materials (e.g. lead paint).
10. Evaluate the probability that the supplier will covertly use child or slave labour.
11. Evaluate the probability that the supplier will experience shortages of purchased raw materials.
12. Identify at least one secondary source in the event of a failure of the primary supplier.
13. Determine if multiple Tier I suppliers have a sole source relationship with a common Tier II supplier.
14. Evaluate the probability of work stoppages (i.e. strikes) for multiple tiers of suppliers.
15. Evaluate the probability of IP theft.
16. Research the probability of a pandemic influenza outbreak in the supplier’s region.
17. Research the probability of a natural disaster (e.g. proximity to fault lines, hurricane belt, flood plains, etc.) in the supplier’s region.
18. Evaluate the probability of political unrest in the supplier’s country, including uprisings, war or sanctions by your country.
19. Evaluate the probability of new legislation that would require a design or materials change.