Implementing Risk Strategies for the Supply Chain

By Alexa Sussman, Content Marketing Writer, EtQ | November 22, 2016

Risk remains a major theme as approaches to quality management develop. As more companies adopt quality management as a priority, risk plays a bigger role in organizations across all  industries. Risk management is a major factor in quality and compliance because mitigated risk is linked to organizational excellence and efficiency.

But as businesses grow, they face quality challenges that make maintaining organizational excellence difficult. The rate of change in products, processes, and regulations has increased exponentially—organizations must take on a more complex business approach as they grow to a global scale.

These challenges are especially prevalent in the supply chain. Organizations are turning to outsourcing to get products to market faster and alleviate some of the difficulties associated with large-scale production. However, outsourcing brings inherent risks to an organization because growing supply chains increase business complexity.

Gaining visibility into suppliers’ processes is the goal of managing risk in the supply chain—this ensures equivalent quality and compliance with a company’s internal operations.

Challenges in Supply Chains
Outsourcing some of an organization’s processes is beneficial for business. It grants greater flexibility throughout processes, leverages specialized knowledge and skills, allows faster technology adoption, and enables transfer of certain risks and costs.

However, many quality professionals struggle to increase visibility and control within the supply chain to keep up with increased outsourcing. Recent research has shown that less than a quarter of a typical company’s supply chain is assessed for risk. The research also shows that even fewer companies have true visibility into supplier operations.

The good news is that those numbers are changing; more than half of companies plan to invest in additional technology to improve supply chain visibility by 2018. These solutions will strengthen product integrity and supply chain continuity.

Risks Unique to Supply Chains
To best mitigate supply chain risks, organizations should fully understand the risks specific to the supply chain:
  • Loss of critical skill: Outsourcing certain processes may mean that internal skills are not utilized to their full potential. Furthermore, processes can’t be controlled or personalized if they are out of a company’s hands.
  • Loss of IP and counterfeiting: Loss of intellectual property accounts for billions of dollars in losses. If an organization shares too much, it might lose its property; if it shares too little, then it is not maximizing the supplier relationship.
  • Dependence on suppliers: Supplier activities and health must be known. It must be actively discovered if suppliers are cutting corners, rather than assuming they are operating up to an firm’s standards.
  • Different visions: It’s important to ensure suppliers are invested in a company’s success. Sometimes, the relationship becomes one-sided and is no longer mutually beneficial.
  • Cultural differences: Language barriers, areas of operation, and other cultural differences can impact the relationship in ways that can’t always be prepared for.
  • Loss of operational control: A company should be in the driver’s seat regarding outsourcing processes. When a majority of an organization’s processes are outsourced, it may lose control.
  • Lower visibility in performance and quality: Overall quality can suffer if a company is not in control and doesn’t know what suppliers are doing.
Once these supply chain risks are identified, steps can be taken to mitigate those affecting the organization.

How an Automated QMS Fills the Gaps that Increase Risk
Many supply chain risks stem from outdated and inefficient manual processes. An automated Quality Management System (QMS) helps fill the manual gaps that may initially increase risk. Using an automated QMS extends compliance to suppliers while factoring in cultural differences, subcontractors, and other challenges unique to the supply chain. An automated system can help an organization clearly define acceptable risk levels and monitor them in real time.

The first step is to extend quality management to the supply chain by finding manual gaps and filling them with automation. Here are five of the most common gaps and how automated solutions can prevent them from increasing risk:
  1. Supplier onboarding: Risk is at its highest when engaging in a new supplier relationship. Most approval processes are manual through the approval and specification stages, and this can be dangerous without a clear understanding of supplier operations.

    Filling the gap: An automated supplier approval process lets suppliers simply click a URL to begin the process, instantly notifying an internal representative of the action. Suppliers create their own profiles and build a system that includes proper contacts and a dashboard for collaboration and interaction.
  2. Existing supplier collaboration: Emails have previously been used to build specifications, but this method of communication is not effective or quick enough to keep up with the pace of business. Emails provide little security and there’s no guarantee that the addressee will see or open them in urgent situations.

    Filling the gap: An automated specification approval process lets organizations save everything in a central system that suppliers can also access. Suppliers can view and sign off on changes, instantly notifying the necessary party. This provides a secure platform for all of a company’s collaboration efforts, as well as a central document storage system.
  3. Annual supplier audits: The manual processes for supplier self-assessments and supplier corrective action requests (SCARs) are slow and inefficient. By the time issues uncovered during audits are identified and corrected, imperfect products may already be in the market.

    Filling the gap: An automated supplier audit process lets suppliers schedule self-assessments themselves. There is a much quicker turnaround from scheduling to approval and execution with automatic notifications enabled. The results from the audit are communicated instantly though the network, resulting in no paper chase and a consequently smoother workflow.
  4. Receiving shipments: Procedures for investigating non-conformances and inspecting shipments still utilize manual processes, which don’t address issues quickly enough. The longer it takes to address and solve the problem, the higher the risk of substandard products entering the market.

    Filling the gap: Implementing automatic processes for resolving material non-conformances can help resolve issues before releasing finished products into the market. Internal representatives send all necessary information to suppliers, suppliers recommend dispositions, and a plan is executed. SCARs are issued if necessary, which are all stored in a central hub that provides visibility for all parties. The automated process allows for a quicker and more accurate turnaround.
  5. Issuing SCARs: Waiting for suppliers to suggest and implement corrective actions is slow because manual processes are untraced and offline. They provide no visibility or accountability throughout the process.

    Filling the gap: Having the SCAR as a part of an automatic supplier management process leads to more effective communication. Both a business and its suppliers can update due dates or other information, all changes are visible, and there is a traceable record of all information. In that network, suppliers can perform root cause analyses, determine corrective actions, and send them back for internal review. The same process can be applied for the resolution of the SCAR, enabling an efficient workflow throughout the entire process.
Allowing an automated QMS to fill the gaps created by manual processes will help eliminate situations where risk could increase.

The Risk Management Process
No matter which tool is used for managing and mitigating risk, the same general approach should be taken for each tool to achieve the best results. First, all relevant risks need to be identified via a hazard analysis. By analyzing all areas of operations and cataloging where potential errors exist, potential risks can be determined.

Once risks are identified, they can be quantified with a risk tool—usually categorized by probability and severity—to determine the proper action and priority level. Then, an organization can either accept, reduce, compensate, transfer, or avoid the risk, depending on its potential impact. Finally, controls are implemented or improved, and change is monitored.

Leveraging Risk Management Tools
An automated QMS also has built-in tools that can further help to identify and mitigate supply chain risk.
  • Decision Tree: This tool visualizes courses of actions and how multiple decision points might impact the outcome. This way, the impact of certain supplier actions on overall risk can be seen.
  • Risk Matrix: This is a bold and visual plotting of risk, based on the quantification of probability and severity of a possible event. This can be used to evaluate quantitative supplier criteria, such as the results of a supplier audit or the prioritization of SCARs.
  • Failure Modes and Effects Analysis: This tool enables analysis of possible failure points in the design phase before production begins. This endows organizations and their suppliers with mutual visibility at an early stage, so unnecessary time and effort aren’t spent correcting the failure points.
  • Risk Register: This is a catalog of risk and hazard data over time, which can be used as a reference point for decision-making. It is a useful tool to verify that a supplier relationship is healthy and always improving.
Depending on an organization’s specific needs, different combinations of these tools will help to identify and manage risk throughout the supply chain.

Closing Thoughts
Using a supply chain is beneficial for organizations, but there are inherent risks. It’s important to reach a point where the benefits of a supply chain outweigh the risks.
To do so, quality management needs to be extended to include suppliers. Leveraging an automated QMS can help fill the manual gaps with automation and reduce potential process risks. An automated QMS also provides a wide range of tools to assess and manage risk.

Why is this important? Building a successful risk assessment and management system strengthens both an organization’s supply chain and the quality of the entire organization. Over time, certain risks can be eliminated and new risks can be prevented. This enables a proactive approach to risk management, which means less time and resources will be spent on response to quality issues.

Businesses can then refocus their efforts on improving products, customer relationships, and societal influence. 

Alexa Sussman is a marketing content writer for EtQ. She is responsible for developing and writing content for EtQ, a leading enterprise quality and compliance management software vendor, as well as traqpath, EtQ’s compliance and event-tracking solution.

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