Case 1 Automotive supplier for a large North American heavy truck manufacturer.

On a frequent basis this company experiences unplanned supplier events such as

shortages, declining quality, or in some cases even supplier bankruptcies. As part of a
larger organizational improvement project this company conducted a supplier risk
assessment for a selected commodity group in support of the mitigation of risks at
identified critical suppliers.
The objectives were two fold: First to assess all criteria that contribute to supplier risks in
the detail level required for identifying critical suppliers and analyzing root causes;
Second to implement mitigation steps at identified suppliers.
In order to identify critical suppliers holistically and within a limited time frame, the
(DRK) approach was used. This approach enables organizations to assess supplier risks
holistically within 6 categories:
1.
2.
3.
4.
5.
6.

Relationship,
Performance,
HR,
Supply Chain Disruption,
Financial Health, and
Environmental Indicators.

The assessment was conducted as a combination of interviews and an on-line surveys that
allow organizations to assess a large group of suppliers within a short time frame.
High-level results of the assessment were presented in form of a supplier portfolio
including supplier risk probability and revenue impact of each supplier. See figure 1.
Note. all company names and ratings have been changed for this case.

Figure 1. Supplier Portfolio Injected Molded Plastics (IMP)

Critical suppliers with high revenue impact and medium to high risks were identified
(within the red circle) based on this view. Since this was a mature industry, high risk
ratings were not anticipated. Most suppliers were at a risk rating of 0.2 or below. This
rating is developed from the assessment and performance data using the DRK method.
The revenue impact reflects the impact on the company if the supplier suddenly
disappears and there was a one year recovery period.
More detailed results of the assessment were presented for the identified critical suppliers
in form of Risk Wheels (Figure 2) that allow a more detailed assessment of supplier
specific root causes for risks. A risk wheel maps the six categories to risk events that are
present in the supply chain under review. The risk events are assigned a base probability
of occurrence determined from interviews with company subject matter experts. The
assessment results for the supplier are then applied to the risk event and the RPI (risk
probability index) is developed for that supplier and that event. The event scores are then
averaged to calculate the overall RPI for the supplier. This RPI is used in the portfolio
view (Figure 1).

Figure 2. Supplier Risk Wheel

The red and yellow areas where analyzed in the risk wheels of all suppliers. Examples of
top line details for are shown in figure 1.
This supplier shown as an example in Figure 2 has a very high revenue impact and a
medium RPI. The main areas that emerge in the analysis of the RPI are:

Supplier is highly unionized,

Has assigned a low number of engineers to the companies parts,
Is planning a capacity decrease and
Is not sharing inventory status information with the company.
Has a lengthy transportation route
Has an average supplier rating from the company.

In discussion with the company commodity managers, this supplier presents a medium to
low supplier risk to the company. Delivery and quality risks are the most pronounced,
mostly associated with dramatic demand fluctuations at the company and the large
number of ship to/ship from combinations and routes. . A supply chain disruption could
occur however due to the high union rate. Here are the conclusions and actions that came
out of the discussions and reviews.
1. Reduce the suppliers delivery risk by targeting information flow to the company.
2. Understanding the impact on the company of this suppliers capacity restrictions

3. Reduce the suppliers service risk by having the supplier increase engineering
support for the company parts.
4. Define process, roles & responsibilities to monitor union trends and issues.
After review of the portfolio and individual suppliers risk wheels, suppliers and
company commodity managers were brought together to work on solutions through a
series of facilitated workshops including applying Ishikawa Diagrams in order to identify
root causes that can be turned into improvement projects.
As result of the assessment, this company was able to make informed decisions regarding
supplier development as well as potential supply base optimizations including
terminations. Mitigation actions at critical suppliers were able to improve performance
and mitigate risks. For example: parts inventories were increased during tight capacity
periods, additional suppliers were qualified and set up as back up suppliers for capacity
constrained periods, volume was moved from a risky, constrained supplier with systemic
quality issues to a supply that had a great quality record. Volume was also moved from a
supplier that had very little commitment to the segment (as measured by the risk wheel
event of misalignment of interest) to a supplier that was more committed and therefore
more prone to make investments in capacity and quality.