“The creditworthiness of the company, the seriousness, the situation, whether the competition is being supplied should all be checked. Then, the company size, know-how, innovation and investment levels, and, of course, the technical performance were considered. Whenever a delta was found, whenever a comparison between what we wanted and what the supplier had, was made, then a risk was at minimum identified; the risk was then evaluated and remedial action was taken”. (Interview – Senior Director Supply Chain Management, Engineering)
The risk identification is followed by a risk analysis, which focuses on the causes and sources of risks. In addition, the positive and negative extent of the previously identified risks and their probability of occurrence are analyzed. The risk analysis is subsequently followed by the risk assessment phase, in which the order of priority with which the risks must be addressed is determined, based on the results of the risk analysis (Purdy 2010, p. 884).
In the numerous expert interviews and focus groups with company representatives and scientists for the development of the maturation model, the following measures were identified:
- Do not limit the assessment and prioritization of supply chain risks to the specifications set by management in order to meet their legal requirements. For example, list the top 10 overall risks which include an assessment of the probability of occurrence and extent of damage from each risk.
- Perform the assessment of operational and strategic supply chain risks at regular intervals.
- Try to use semi-quantitative (FEMA, fault tree analysis, etc.) and quantitative methods (sensitivity analysis, risk simulation, value at risk) in addition to qualitative methods (surveys, estimates, etc.).
- Define criteria and thresholds that can be uniformly applied to evaluate risks.
- Ensure inter-departmental communication regarding supply chain risk assessments so that each department is prepared for an individual risk.
- Ensure that the supply chain risk assessment can be quickly adjusted to keep it current as the risk situation changes.
- For long-term evaluation, ensure that the results can be compared with previous quarters.
- When assessing and prioritizing supply chain risks, try to avoid updating the current risk report at regular intervals so that each year, previous and current year, will be viewed independently. Every assessment should be “started from scratch” at regular intervals.
- Create a comprehensive data model for the evaluation of supply chain risks in order to be able to make both qualitative and quantitative assessments.
- Use algorithms to determine how each product/part affects sales numbers in order to quantify the extent of damage.
- Develop company-specific risk indices to evaluate and consider various scenarios (for example, using Monte Carlo simulation).
- If relevant, reconcile the downstream supply chain stages instead of evaluating supply chain risks.
- Try to derive trends from the overall performance of key indicators using algorithms. These algorithms should recognize patterns in the database of preventive risk assessments and consider the external value creation of given supply chain points. Additionally, the calculation should perform a “predictive analysis” to isolate possible defaulting suppliers.
Extract from Schröder, M. (2019): Structured improvement of supply chain risk management. In: Supply Chain Management – Contributions to Procurement and Logistics, Series Essig, M.; Stölzle, W., Kersten, W., Springer Gabler: Wiesbaden