Tag Archives: supplier risk management

Does risk management require supplier development?

In the past few weeks, I’ve talked with three companies with a key objective to look at on-shoring components that have been sourced in low-cost countries for several years. The directive is coming from both the executive management and a Board of Directors concerned with risk management. The difficulty in resourcing some of these components is that it’s difficult to find suppliers with the capacity, scale and know-how to support the demands of large customers, because much of the industry has moved to low-cost labor countries. In some cases, whole industries were outsourced, like the tooling and electronics industries. Each industry has its own problems returning to domestic production.

The tooling industry saw many of its skilled tradespeople leave the industry, retire and they’ve failed to drive automation and capital expenditures in the absence of customers. Tooling has been sourced in Asia for more than two decades. To reshore, sourcing professionals must locate suppliers, help them gain skilled workers or encourage automation and scale up the capacity and capability to meet their demands. This is not a simple sourcing program and will take resources, time and capital to accomplish.

The electronics industry made significant investment in Asia, developed the supply chain and workforce in Asia. It, too, will take a skilled labor force, capital investment and supplier development to return sourcing to US factories. While these are just two examples of the difficulties in reshoring, many companies are now sounding the alarm to their purchasing and supply chain teams to build risk mitigation plans based on a new reality and changing environment.

As part of any market analysis, category managers must keep refreshing the Porter’s 5 Forces and STEEP/PESTLE (social, technological, environmental, economic, legal and political factors) market analysis to stay ahead of the rapidly changing dynamics. If you haven’t looked at reshoring, let the tariff imposed on Canadian softwood lumber be a warning that on critical components you may need a new strategy to locate domestic suppliers and understand what development must be done to make them capable should the need arise.

Are you prepared to develop a supplier?