Teaming up to uncover supply risk

The recent article in Purchasing, “Allegheny Technologies Designs a Broad Risk Strategy”, (8/14/2008) is one of the rare glimpses into how some companies are actually dealing with supplier risk. Rather than just talking about risk or not acting on Sarbanes Oxley directives to address supplier risk, some companies are taking action. What I found particularly positive was Allegheny Technologies’ cross-functional approach to supplier risk mitigation. As in many supplier issues, more than the procurement function needs to be involved, as the impact typically reaches beyond the procurement department. Other functions may have knowledge of risk areas that procurement is not aware of and thus need to be part of the risk planning process. Another contributor to supply risk can be a lack of information or poor information for making decisions. For example, if the results of supplier performance scorecards are not shared or are inaccurate, appropriate action cannot occur and supply risk can increase.    Senior management support, often in the form of resources, is much more likely when procurement is looking out for the best interests of the entire company and involves the appropriate parties. Another important reason to involve other functions in the company is that other functions may, in fact, be making decisions that increase rather than reduce supply risk. SOX-mandated risk planning is here to stay. Linking supplier risk planning to overall corporate risk planning is a logical and essential step.

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