What we will discuss in this article are the tools we need to use in the application of the RISK MANAGEMENT PROCESS (which is the fifth and last article in this series).
The graphic/slide denotes the elements of ACTION – We need trained PEOPLE with core values to employ coordination in a PROCESS that incorporates an effective application of the TOOLS needed to mitigate/reduce the risks we are exposed to when executing our supplier strategy.
The tool of Pareto Analysis (otherwise known as the 80/20 Rule) to aid us identifying the key spend categories. In addition, the utilization of a purchasing software tool entitled “SPEND ANALYSIS”. It would denote to us the items and their respective levels of expenditures in order of greatest to lowest (in essence it would show us the cumulative 80% of spend value and their respective items, that typically would be made up of 20% of the total items purchased).
This would then lead us to another tool to use. That would be to aide us in focusing our attention on KEY ITEMS that represent strategic importance – HIGH RISK MATERIALS and/or SUPPLIERS. The risks can be denoted by the price or long lead times or critical process or any other facet identified by your internal customers (users). This tool is the RISK & PROFIT IMPACT MATRIX denoted below:
When using the “Spend Analysis” Report, prioritized (HIGHEST TO LOWEST) – to denote importance of either spend value or degree of criticality (long lead times, high prices etc.) we position the items into their respective quadrants. Our focus of effort is to minimize the risk for those items/respective supplier falling into the “RED” (upper right quadrant).
This becomes our direction to attack the issue/s, with efforts in concert with our interactions with the respective suppliers.