Managing supply chain risks includes developing alternatives to key suppliers. This ensures that if one supplier faces disruption, there are other options available to maintain the supply chain continuity.
Diversifying the supplier base reduces dependency on a single source and enhances resilience.
* Setting aside funds for disruption-recovery efforts is a financial strategy, not a supply chain management activity.
* Charging each supply chain partner a portion of risk cost may not be feasible or effective in managing risks.
* Creating extra inventory to cover disruptions is a common strategy but it is not a proactive risk management activity like developing alternative suppliers.
References:
Chopra, S., & Sodhi, M. S. (2004). "Managing Risk to Avoid Supply-Chain Breakdown." Harvard Business Review.
Tang, C. S. (2006). "Perspectives in Supply Chain Risk Management."
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Strategic purchases are best suited for single sourcing with a preferred supplier to reduce supply chain risk.
These purchases are critical to a company's operations and often involve complex and high-value items. By single sourcing with a preferred supplier, a company can establish a strong, collaborative relationship, ensuring quality, reliability, and continuity of supply, while also potentially benefiting from supplier innovation and cost efficiencies.
* Routine (B) purchases are low value and low risk, often sourced from multiple suppliers.
* Bottleneck (C) items have a high supply risk but are not necessarily strategic; they might require multiple sources or contingency planning.
* Leverage (D) items have significant purchasing power and are typically sourced from multiple suppliers to optimize costs.
References
* Kraljic, P. (1983). Purchasing must become supply management. Harvard Business Review.
* Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and Supply Chain Management. Cengage Learning.