Supplier Risk Management

/Supplier Risk Management
Supplier Risk Management2018-03-26T10:27:09+00:00
Outperform SRM - Supplier Risk Management Oil & Gas Energy Utilities Industries

Outperform SRM – Supplier Risk Management Oil & Gas Energy Utilities Industries

OutPerform SRM – Supplier Risk Management

Supplier Risk Management includes processes and procedures and controls to offset risk factors that could interrupt a supplier’s ability to provide an organization with needed raw materials, components, or other inputs or services. These Supply Chain Risks risks include the areas financial risks that could affect a supplier’s solvency; operational risks that could affect quality, logistics or pricing; market risks related to regulatory and geopolitical events, or changes in commodity prices; even environmental and safety risks; and risks associated with major catastrophes and natural disasters; and anything that would compromise a company’s brand, intellectual property or proprietary processes.

Before Oil & Gas companies (Operators and Suppliers) can devise effective means of reducing supply-chain risks, managers must first understand the universe of risk categories as well as the events and conditions that drive them. This will often differ by Category / Service line. Then, armed with clear, specific knowledge about these crucial risks, companies can proceed to select and tailor mitigation strategies Likely to be most effective both for the company as a whole and at the regional or category line level.

Supplier Risk Management areas where we advise include:

  • Risk Register Management
  • Risk Impact Assessment
  • Risk Probability Assessment
  • Risk Monitoring
  • Risk Scenario Analysis / Planning
  • Risk Recommendation Frameworks
  • Risk Alert Thresholds
  • Risk Collaboration
  • Risk Escalation Management
  • Risk Management Systems
  • Risk Management Automation
  • Tier 3 Supplier Risk Management

 

Managing supply-chain risk is difficult because individual risks are often interconnected. As a result, actions that mitigate one risk can end up exacerbating another. A good example here is the tradeoff between drilling efficiency, lower NPT and their subsequent and possible impact on HSSE risk.

Consider also a lean supply chain. While hare-bones inventory levels decrease the impact of over-forecasting demand, they simultaneously increase the impact of a supply chain disruption. Similarly, actions taken by any company in the supply chain can increase risk for any other participating company, an example here would be the lack of availability of OCTG to one company by the stockpiling of OCTG by another competitor company. The level of risk and business impact can be best demonstrated by the following figure.

Contract & Supplier Risk Management- Supply Market Opportunity - Business Impact

Contract & Supplier Risk Management- Supply Market Opportunity – Business Impact

Supply-chain risks can become full-fledged supply-chain problems, causing unanticipated changes in flow due to disruptions or delays. Disruptions can be frequent or infrequent; short- or long-term; and cause problems for the affected organization{s), ranging from minor to serious. A simple delay along the chain may create a temporary risk, whereas a sole supplier holding up a manufacturer to force a price increase represents a long-term risk. A machine breakdown may have a relatively minor impact on a manufacturing company with redundant capacity, whereas a war that disrupts shipping lanes can have a major impact on a shipping company.

In the vast majority of industries companies develop plans to protect against recurrent, low-impact risks in their supply chains. Many, however, all but ignore high-impact,low-likelihood risks. For instance, a supplier with quality problems represents a common, recurrent disruption. Without much effort, the customer can demand improvement or find a substitute. In contrast, within the Oil & Gas Industry an unavailable specialized component for drilling a deepwater well costing a mere $500 dollars can cost Millions of dollars in operational downtime. Leading Oil & Gas companies deal with this range of supply-chain risks by holding reserves. Just as insurance companies hold cash reserves to meet claims, top manufacturers hold supply chain reserves that include excess inventory, excess capacity and redundant suppliers.

The big challenge for managers here: Mitigate risk by intelligently positioning and sizing supply-chain reserves without decreasing profits. So while stockpiling inventory may shield an Operator against delivery delays by suppliers, building reserves in an undisciplined fashion also drives up costs and hurts the bottom line. The Category managers’ role here is akin to that of a .stock portfolio manager: Attain the highest achievable profits (reward) for varying levels of supply-chain risk and do so efficiently. This means the manager must seek additional profits for any level of risk protection and preparedness or increase prevention and preparedness without reducing profits. Success at this task requires a good understanding of supply chain risks and remedies, both broad and tailored to the manager’s own company.

Latest Best Practices Articles covering Supplier Risk Management:

 Supplier Risk Management – The need for speed …at what cost? (Part 1 of 3) (Mar 2018)

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