Failure to act
An aero engine consists of hundreds of thousands of different components, and traditionally the focus of risk is dedicated to those components.
However, the failure to recognise the supply chain of the products and consumables that go into making those products nearly led to a catastrophic failure for one global aero engine manufacturer.
%age of annual spend
Original risk assessment
For years a "consumable" product had been classified as low risk due to annual spend when viewed as a percentage of overall spend. However, when the product was viewed as a measure of criticality to the business if the supply chain failed and the availability of alternative suppliers, the picture changed.
When this was highlighted during a strategy review it was dismissed.
"It hadn't failed in all these years, why would it fail now!?"
Forward 6 months:
A sub-tier supplier to the site distributor asked for a cash injection. Supplier denied it was about to go into administration and 2 weeks later, a call was received to say that the supplier was filing for administration.
The supply chain was broken and immediate action required and engagement with senior levels both within procurement at the operations commenced.
Extensive stakeholder activities were required to manage the immediate risk but agree long term strategy.
Cost of 12 weeks financial support
Potential lost revenue
New risk assessment
Agreement from Exec's was gained to work with the administrators for a period of 12 weeks to financially underwrite the supplier, costing £450k against an annual spend of £150k for the product.
Senior engineers and process experts were engaged and alternative products were sought and validated, but the loss of yield was a big risk.
New stocking arrangements were put in place.
The contract with the distributor was reshaped to recognise their crucial role in managing the sub-tier supply chain.
And similar products assessed.Resource was provided to action a large 2 year project to identify and mitigate risks!
There are no single fixes to mitigating risks within supply chains, and it can also be costly given resource required to validate alternative products where alternatives exit, or replace processes.
But failure to acknowledge, map out and mitigate your supply chain risk in the right way can cost you a lot more than doing nothing.