CASE STUDY INDUSTRIAL
59% OF SRM LEADERS HAVE CONDUCTED A VOICE OF THE SUPPLIER STUDY IN THE PAST 12 MONTHS. FIND OUT WHAT YOUR KEY SUPPLIERS REALLY THINK OF YOU AND HOW TO BECOME THEIR CUSTOMER OF CHOICE.
VERTICAL SILOS HINDER GLOBAL RISKMEASURES " We are set up in vertical silos based on geography or product type. We discovered we don't have a global view of the total exposure to supplier risk, we only have a vertical view. We wanted to try to create amethodology we could use for understanding andmanaging supplier risk across the whole group,” the risk manager says. The manufacturer’s risk teamworked with State of Flux to set up a template for understanding supplier risk across assets and product types. The joint team started working with one of the company’s manufacturing plants in South America in 2015 to validate the template. During the site visit the team surveyed 14 of its stakeholders to understand the perceived maturity of its risk management processes. The manufacturer did not only need to create and validate its risk methodology for internal purposes; the exercise was also important to insuring the business appropriately. It needed to ensure the financial markets could understand and use the risk data it was producing and to make sure it was insured according to the level of risk for each supply chain activity. If you can choose the right KPIs, defined by your understanding of suppliers’ drivers, then you can create stakeholder and enterprise value. You know which elements you need to work on, how to prioritise investment and you know what effect that will have."
ALIGNING KPISWITH RISKMEASURE AND BUSINESS DRIVERS The manufacturer worked with State of Flux to understand the drivers of behaviour in the supply chain and ensure that internal KPIs were aligned to that picture. “Then you can understand where you are, where the gaps are versus where you want to be and over time close those gaps. Quality will improve, and working capital will become more effective. Supplies will start to arrive just in time, as opposed to just too late, and you will not have tonnes of material sitting in a warehouse because you got the calculation wrong,” the risk manager says. “If you can choose the right KPIs, defined by your understanding of suppliers’ drivers, then you can create stakeholder and enterprise value. You know which elements you need to work on, how to prioritise investment and you know what effect that will have. Over time you should be able to show how theoretical value creation becomes real with a supply chain that is more resilient and robust,” he says. The manufacturer has calibrated the methodology in South America over the past year and is set to verify it in Africa next year. It is still early days for such a complex initiative.
about suppliers. It even used geological measures of risk to assess the likelihood of earthquake disruption. Using supply chain data and information providers such as Dun & Bradstreet, it measured these risks five tiers down its supply chain. The supply risk methodology also considered the demographic risk within a supplier: to probe whether suppliers can capture knowledge and learn from experience. Such qualities can be affected when companies decide to outsource production or services to off-shore locations, the risk manager says. "When both you and a supplier have people retire, and younger people come in – perhaps in a third-party service provider – do you capture experience? If not, suddenly the problems you experienced 20 years ago can start to happen again. Costs go up, delivery times go up and production goes down. It is interesting to know the demographic changes taking place within a company, a country and an industry,” he says. But the purpose was not only to make sure the risk was correctly understood and priced; it was to alter company and supplier behaviour to reduce risks. The objective is to align key performance indicators with the newmethodology. "In the industrial world, many people choose the wrong KPIs. They are bonus-driven, or achievement-driven around a person or a plant. They do not necessarily help the whole group,” the risk manager says.
A METHODOLOGYWITHMANY MEASURES
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The risk methodology includes geopolitical stability, economic data and educational performance, as well as internal information
40 CASE STUDY STATE OF FLUX
2017 GLOBAL SRMRESEARCHREPORT
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