This week I attended ISM's webinar on mitigating supplier risk. The event recording can be viewed here.
The primary expert on the call was Scott Meiser, Director of New Procurement Programs at Reed Elsevier (owner of LexisNexis). Supplier risk is most often managed during the sourcing process, but it should be handled as an ongoing area of effort.
Step 1: Identify key risks – this includes fraud, natural disasters, lawsuits, layoffs, quality concerns, restructuring, IT security and reputation. There may already be existing processes within your company for managing some categories of risk. The challenge is in integrating them with procurement.
Step 2: Measuring risk – Reed Elsevier makes use of their access to LexisNexis news sources by category and supplier
Step 3: Segment the supply base – who owns the category, how much spend is in question. Be sure to gain perspective across the categories of spend so that the segmentation is accurately relative. Reed Elsevier uses a four tier supplier categorization:
- Critical: direct impact to the supply chain or customers
- Strategic: necessary/important
- Preferred: prioritized/recommended (most suppliers)
- Approved: exists in accounts payable
Reed Elsevier has 600 suppliers in the top three tiers of categorization, although there are 15K suppliers in addressable spend categories. 35 suppliers are considered critical, and that designation is constantly under review.
Step 4: Publish a standard – what risk will be managed when, how and by whom (hint: make it easier to comply with the standard than not).
One of my take-aways for me from this webinar was the power Reed Elsevier has based on the LexisNexis service. For those of you not familiar with LexisNexis, they provide online access to pretty much all news publications worldwide. I used their service in a previous life when I worked in the research department at a boutique consulting firm in downtown Boston. (Yes, it is really that bad – I am a procurement geek AND a library scientist…).
For those of us without access to LexisNexis, Google allows you to create custom news alerts to be emailed to you. Use this link to set them up. You can use a category of spend, an industry, or the name of a supplier. You will need to set up an alert for each category or supplier you would like to follow.