CASE STUDY

Reducing the Probability of Supply Risks by 50% for a Heavy Machinery Company by Performing Supplier Risk Assessment

Dec 20, 2019

Heavy Machinery Sector Overview 

The manufacturing/industrial engineering sector accounts for over 20 percent of the GDP in Sweden, with advanced manufacturing bringing in approximately USD 40 billion. Manufacturers are early adopters of new technologies alongside traditional tooling. They are keen to turn their production facilities into factories of the future with quick response capabilities, flexibility, and reduced risks. This case study is a classic example of how we helped a leading manufacturer to improve flexibility and reduce supply risks.

Business Challenges Faced 

The client is one of the leading companies in the heavy machinery sector that supplies products and services to both domestic and foreign customers. The company produces highly customized and configured products and uses a make-to-order production strategy to be more flexible to product variability. The company has a diverse set of suppliers for different parts to produce mills and their performance impacts the sustainability of the company. However, they were facing significant supply risk problems by overlooking supplier-related risks.

Performing a supplier risk assessment is crucial for companies to develop effective supplier management strategies. Request a proposal to access our supplier risk assessment solutions for FREE now!

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Our Research Approach 

The experts at SpendEdge understood that supply risks could be addressed by eliminating unreliable and risky suppliers. This could be achieved by considering the risk level of suppliers. Therefore, they analyzed key suppliers as the most critical suppliers of the company and selected them for analysis. A proprietary supplier risk assessment model was created to evaluate suppliers based on purchase price variance, financial condition, manufacturing capability, flexibility. Factors such as technological capability, the average defect rate of the supplier, quality management, supplier lead time variability, ease of communication, reliability, and after-sales service were also critically examined to determine the risks.

Moreover, the raw data were examined to gain insights into the risk structure of each supplier cluster and provide more accurate information. This helped the client to identify suppliers with the highest risk profile. A supplier management program was then developed based on the results of the analysis to eliminate suppliers with a high-risk profile. The interpretations of the results also provided insights for supplier risk management actions to mitigate supply risks.

Engagement Outcome

SpendEdge’s supplier risk assessment solution helped the heavy machinery company to analyze risks related to the capabilities of the supplier. This enabled the client to procure parts and equipment at better prices and reduce the probability of supply risks by 50%. Additionally, the customized supplier risk assessment report provided the client with much-needed information on suppliers’ reliability, operational risks, and price risks, thereby reducing the supply risks significantly. 

Conducting supplier risk assessment involves performing cluster analysis and understanding risk structure of each supplier cluster. Subscribe now to enjoy free access to our web-based platform for better insights and supplier risk assessment solutions. 

How to Perform Supplier Risk Assessment?

  • Identify the vendors that present the most risk to the business. 
  • Create a supplier risk assessment template to find about the vendor’s policies, processes, and procedures. 
  • Develop an appropriate supplier risk management strategy to mitigate the risks. 
  • Depending on the supplier and their risk profile, order more supplier risk assessments on a more regular basis. 

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