A multinational high-technology firm specializing in the design and construction of industrial automation control and information solutions was considering the risks it faced from its suppliers. Like many firms of comparable size and scope, it relied on an extensive network of over 4,000 suppliers with over 400 critical suppliers, ranging from component manufacturers to distributors. As its products were highly engineered, a failure or interruption in its upstream supply chain would have significant implications for its customers and ultimately its margins and revenue.

The company had previously identified, measured, and invested in risk mitigation programs, the use of on-site audits, surveys, policies, and legal contracts, but senior management realized that these steps were insufficient because it was only addressing a very small percentage of the suppliers. Although the company knew there was value in these techniques, it was interested in taking more proactive steps. However, with more than 200 product families and 8,500 products, the deployment of a deeper level of anticipatory tools and real-time monitoring systems would be expensive.

The MRC Solution

The company contacted Marsh Risk Consulting (MRC) hoping to establish a more proactive and comprehensive supplier risk program without creating an exorbitant cost driver. In order to accomplish these potentially conflicting goals, MRC designed a supplier evaluation and aided the company in ranking its products by revenue and value, concluding that 25 product families covering approximately 100 products comprised more than 50 percent of its total revenue. Within these product families, the top 50 suppliers were identified in terms of their criticality, and a more comprehensive survey was developed and administered.

MRC then designed a closed-question supplier survey process which included an assessment of continuity, sustainability, product risk, insurance coverage, and governance and management. When this group of suppliers was asked whether they have a formal program that tests their resiliency and continuity, over 70 percent either answered “no” or declined to respond, painting a much different picture of the firm’s third party risk. MRC then worked with the company to develop “tiers” of supplier risk assessment, measurement, and mitigation programs based upon the individual performance against peer benchmark, an invaluable strategy for managing supplier risk on such a large scale.

The Result

Possessing this new information, the company’s supply chain management team focused more detailed supplier risk measurement activities on a handful of suppliers that were under-performing. Risk mitigation activities were then focused on suppliers which posed the highest risk of failure and impact to revenue during an extended disruption.

This business intelligence—coupled with its previous investment in supply chain mapping and identification of speed in response/crisis management/business continuity practices—allowed the firm to develop a truly comprehensive view of its supply chain risks and ensure value for stakeholders in its mitigation program.