What is Supplier Risk Analysis and Why is it Important in the Mining Industry?
The value of a robust supplier partnership has often gone unnoticed in past years, and companies fail to understand the impact of their vendors and partners operations on their efficiency, costs, success, and growth. As industries have evolved, economies have grown, and businesses have become increasingly competitive, the importance and impact of supplier processes, compliance, operations, and systems on an organization has become extremely evident. Supplier risk analysis was developed in response to these realizations, and is leveraged to identify, understand, and mitigate potential risks that can impact a business, cause losses, or effect partnership. Inefficient spend management or processes, inaccurate data, low-quality products and services, and lack of compliance can lead to major challenges for businesses in the long-run, including a decline in quality, cost-efficiency, sustainability, and profitability. To maintain a streamlined, resilient, and transparent supply chain, companies must be equally aware of their current or potential partners’ organizational structure, processes, and operations, and understand any potential risks as well as their impact. Conducting a supplier risk analysis is a crucial, time-consuming, and challenging process, and companies must ensure it is conducted accurately and comprehensively by following five steps.
What is the Process for Supplier Risk Analysis?
Identify Suppliers: A company often works with multiple suppliers that significantly contribute to overall operations, performance, and functioning, and combined with these partners, they maintain efficiency, a steady growth trajectory, and long-term success. However, certain suppliers play a significantly more crucial and contributive role, and potential risks within their systems can cause major damage or losses to the systems of a company. For the first step of a supplier risk analysis, companies must identify the most important and impactful suppliers in their system, and categorize them as per their level of influence or contribution to present systems.
Build an Assessment: To efficiently assess the impact of risks within suppliers’ systems, companies must gain a comprehensive understanding of which factors or influencers will most significantly impact their business, and develop an assessment that analyzes each of those contributors. In each suppliers’ operations and processes, these factors should include and assess quality, strategic alignment, overall efficiency and accuracy, and reliability. Once these standards are stipulated, companies will find it significantly easier and more accurate to assess their partners’ systems and identify shortcomings. This assessment can include a questionnaire for the suppliers, third-party audits, and detailed interviews regarding the systems in place.
Test and Examine Results: Developing the assessment is the first step towards conducting a robust examination and utilizing the results to make significant changes and overcome potential risks. Once the test is administered, companies will gain clarity into the shortcomings presented by their partners, and stakeholders can determine the ideal solutions for each challenge. However, a supplier risk analysis is limited to identifying shortcomings within the system, and companies may need more detailed scrutiny towards the presented data, and capacity of the test to determine the exact challenges, and accordingly suggest or develop alternative solutions. Closely examining the results can help companies understand what the ideal course of action for their business is, and how they can tackle the presented risks.
Take Action: Learning the risks within a suppliers’ systems is highly imperative to improving contract terms, developing systems that are mutually beneficial, and finding sustainable solutions for potential challenges that may develop from the existence of these risks. Therefore, the next step of the supplier risk analysis is to utilize the procured data, assess the identified risks, and develop sustainable solutions to mitigate or minimize potential impact. Due to the challenges being in the suppliers’ systems, companies can simply ensure the challenges do not impact their efficiency, growth, and overall performance. This may include discussing amendments to the current contract, making major changes to the business approach, or adapting the agreed upon processes as per both parties’ requirements.
Regularly Review: As markets evolve, companies change, suppliers grow, and legal policies change, companies consistently face novel challenges, and risks may rise, decline, or adapt to new industry developments. This leads to the need for continuous oversight and regular reviews or changes to the risk management solutions that have been developed. At a mutually agreed upon interval, companies must revisit the supplier risk analysis process, conduct the assessment again, and adapt their solutions and processes to meet current requirements. In doing so regularly, companies can reduce the probability of unexpected challenges, overcome the impact of evolving markets, and keep pace with rising risks.
The mining industry has witnessed a significant surge in demand due to the growth of the metals, electronics, and automotive industries, and this has given rise to a substantial need for strategic improvement and adaptation within mining companies. A leading mining company based out of Northern Europe witnessed a sudden rise in losses, and challenged lead time that caused further inefficiencies and challenges, eventually increasing customer attrition, and minimizing growth. Unaware of the cause for these unexpected challenges, the company sought to partner with SpendEdge and leverage our expertise in procurement and sourcing intelligence. Our experts assessed the company’s systems and processes, and identified a lack of insight into supplier risks, and significant impact from vendor shortcomings. To help tackle the challenge, the experts worked closely with the supply chain team and developed a robust supplier risk analysis system, helped them conduct an in-depth assessment, and identified major risks in partners’ operations that were causing losses for the business. With these recommendations and insights, the company successfully overcame their inefficiencies, developed a robust supplier risk analysis and management system, and regained their customers, market share, and monetary needs substantially.