Supply Chain Risk and Risk Based Thinking

Now that the automotive industry has requirements for risk-based thinking (the upcoming ISO/TS 16949 due out at year-end) and risk management (MMOG/LE v4) how does your organization begin to tackle ensuring you have the proper evidence in the event of a customer review or third party audit? Thinking ahead for possible supply chain risks that you may face is critical in today’s world.

What is Supply Chain Risk?

A risk is an uncertainty in your organization’s strategic objectives or something that causes your customer to be dissatisfied or disrupted. A risk can also be positive or negative. So for instance, a significant growth in your business or a failed customer advanced shipping notice are both considered risks and therefore, should have a plan.

What to Consider to Address Supply Chain Risk

Here are five simple things for you to consider after, of course, your executive leadership is committed and understands that having basic or high-level actions is no longer an option.

  1. Define a process on how you are going to manage and prioritize risk. There are many methods to define the potential risk to your organization, such as a brainstorming session, turtle diagram or a Process Failure Mode Effect Analysis (PFMEA). Once you have gathered all potential risks to your business, you need to prioritize, and then place a focus on those that will have both a high probability of occurrence and a high impact on your business if the risk was to occur.
  2. Create a documented action/risk/contingency plan. One of the most critical items that people miss in their plans is “the return to normal operations.” For example, fire contingency plans discuss how to contain the fire and get everyone out of the building, however, very few address what to do if key personnel are harmed or if the assembly line is damaged upon return.
  3. Train the employees. It is important that you have evidence of training so that you can see employees who are trained, not trained and which may need a refresher. Contingency plans are no good if the employees responsible for actions do not know how to react when a disruption occurs.
  4. Review, test and validate that your risk plans work. Don’t forget that if a disruption happens, you should do a debriefing and note any lessons learned. I am often asked how a company should test a plan. The two most common ways that I see are intentionally causing the disruption (e.g., taking the IT system down) or by acting out the event with top management following the plan to ensure the proper steps were taken.
  5. Address sub supplier risk. One of the biggest things that cause OEMs sleepless nights the inability to know who the Tier 2 suppliers and how the Tier 2 is managed. The sub supplier risk needs to be addressed by all organizations in the automotive supply chain. At a minimum, your plan should address mapping sub suppliers globally, monitoring performance and understanding financial viability. Equally important, ensure your organization require sub suppliers to have a risk process and the necessary action/risk/contingency plans.

Are You Prepared for Supply Chain Risks?

As you can see, several key items need addressing when developing evidence to address risk requirements. For an in-depth look, check out the white paper I wrote, Leveraging Risk Management throughout the Supply Chain. How is your company preparing to address risk or the challenges you are facing? I would love to hear from you!