Purchasing's involvement in risk management

Daniel Dumke — Tue, 15 Mar 2011 09:02:00 +0000

I already reviewed one of the articles of Zsidisin (Perception of Supply Risk). Today I had a look at an article about how the purchasing organization is involved in the supply chain risk management activities.

Exploratory Study

Zsidisin et al. did an exploratory study with semi-structured interviews with purchasing professionals in nine companies from the manufacturing industry.

Semi-structured, open-ended interviews were employed to gain an understanding of how purchasing organizations conduct supply risk assessments and incorporate contingency plans.

Findings

The analysis show that the formalization of the risk management techniques used are quite different. The most commonly used method for risk mitigation is: multiple sourcing for strategic parts. But some of the respondents also had more elaborate approaches to reduce risk, like:

Closer relationships with suppliers
Taking suppliers responsible for risk mitigation
Common product platforms and industry standards

Furthermore buffer strategies are used, as of course holding safety stock, controlling stock within the whole SC or multi-sourcing strategies.
Risk management are seen as important functions, but most also stated that the priority is set very low.

Conclusion

It is interesting to see that similar patterns, like the divergence between the expressed need for risk management activities and the current state of those, arise also in talks I had with SC professionals in the last year. So compared to ten years ago not so much seems to have changed in this regard.

Reference:

Zsidisin, G., Panelli, A., & Upton, R. (2000). Purchasing organization involvement in risk assessments, contingency plans, and risk management: an exploratory study Supply Chain Management: An International Journal, 5 (4), 187-198 DOI: 10.1108/13598540010347307

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Perception of Supply Risk

Daniel Dumke — Fri, 16 Jul 2010 16:06:00 +0000

One of the most published supply risk researchers is George A. Zsidisin. In his 2003 article he describes the characteristics of inbound supply that affect the perception of risk.

Supply Risk

The author defines supply risk as

the potential occurrence of an incident associated with inbound supply from individual supplier failures or the supply market, in which its outcomes result in the inability of the purchasing firm to meet customer demand or cause threats to customer life and safety.

He therefore includes the probability and significance of an adverse event.

Methodology

With the above mentioned definition and a literature review as a basis Zsidisin establishes a case study with seven companies from different industries (Aerospace, Computer, Electronics, Semiconductor).

The data from these sample companies is then analyzed and common patterns are revealed using open and axial coding analysis.

Findings

Three categories which affect risk perception are found (see figure below): item(/product)- , market- and supplier-characteristics.

The influences are pretty straight forward. Examples:

Item Characteristics: new products have a higher perceived risk than existing products
Market Characteristics: unstable marked prices lead to a higher perceived risk
Market Characteristics: the lower the number of qualified suppliers the higher the perceived risk
Supplier Characteristics: low quality levels with suppliers lead to higher perceived risk

Characteristics influencing Supply Risk (Source: Zsidisin 2003)

Conclusion

The proposed categories can be used by supply professionals who are assessing their risks. Caveat: The findings have been generated using case study research the framework therefore cannot guarantee theoretical completeness.

Reference:

Zsidisin, G. (2003). Managerial Perceptions of Supply Risk The Journal of Supply Chain Management, 39 (1), 14-26 DOI: 10.1111/j.1745-493X.2003.tb00146.x

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