Business Continuity in the Supply Chain by dfhrf555fcg


									                           Managing Risk in the Supply Chain

A supply chain risk is any risk where a failure in supply would result in an increased risk to
the community or staff, a significant disruption in Service provision, a large financial
impact or negative impact on publicity or the environment.

Risk assessments must be completed for all procurement initiatives and where the level of
risk is found to be medium or high (see step 2) appropriate action must be taken to
manage that risk.

Step 1 - Identify Medium or High Risk Supply Chains

A Risk Impact Assessment must be completed in order to identify and record any risks in
the supply chain. (Appendix 1). This assessment will form part of a register of those risks
to the Authority.

To help understand supply chain vulnerability and to complete the Risk Impact
Assessment the following should be considered:

      Supply Chain Complexity (appendix 2) looks at the whole supply chain and
       highlights areas such as inspection, movement, lead times, documentation,
       consumption and disposal. Evaluation of each step can help identify the key risk
      Supplier Analysis (appendix 3) looks at how we perceive the importance of the
       goods/service supplied based on the level of value and risk and compares this to
       how important we are to the supplier based on the profit made and scope to
       develop the account. If we are not perceived as being important to our suppliers
       this could lead to supply failure, late notification of problems or loss of credit terms.
      Market Analysis (appendix 4) encourages you to look at how business can be
       affected by what others are doing e.g. an increase of suppliers in the marketplace
       increases our bargaining power or where there are a limited number of suppliers
       they have the bargaining power. Alternatives and substitutes to the product/service
       purchased can affect the service delivery provided by the suppler.
      PEST Analysis (appendix 5) examines external factors which are outside our
       control that could affect the contract.

Step 2 – Risk Estimation

Estimation of likelihood and impact should be undertaken by the risk owner, who will have
a full understanding of the supply chain, the risks and their potential outcomes. This
estimation should be undertaken using a set of pre-determined standard definitions, which
can be found in Appendix 6.

Step 3 – Risk Evaluation

Risk Evaluation is undertaken to make informed decisions as to the significance of the risk
and to determine what action is required. Current risk acceptance and tolerance levels set
by the Authority can be found in appendix 7.

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Step 4 – Plan to Manage Risk

Once the risk has been identified as medium or high appropriate action is required to
minimise the likelihood or impact of the risk. Methods to be considered:

     Risk Reduction: Additional measures e.g. stockholding, dual sourcing, monitor
      contract closely etc.
     Risk Avoidance: e.g. change supplier, strengthen contract clauses etc
     Risk Acceptance: accepting level of risk.
     Risk Transfer: e.g. managed service contract, additional contract clauses etc.
     Risk Contingency: set up contingency contract, include liquidated damages clause
      in contract, request a copy of the suppliers contingency plans etc

Step 5 – Monitor and Review Risk

Contracts which are considered medium or high risk should be monitored and reviewed on
a regular basis, until such time as the level of risk has been reduced to an acceptable
level or the contract has been concluded.

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                                                                                                                            Appendix 1

         Activity                                               New Contract                                     Ref. No.
                                                                                           Action (including Additional        Review
          Risk Description                Existing Controls          Risk Evaluation
                                                                                          Controls and Control Owners)          Date
                                                                      Likelihood    2
Weather conditions mean supplier                                                        Increase stockholding.
                                                                       Impact       3                                          Jul 08
can not deliver product resulting in   None                                             Source second supplier
shortage of equipment/commodity                                                         Control Owner: ***
                                                                     Risk Rating    M

                                                                      Likelihood    1
Product causes injury to FS            Conform to Suppliers            Impact       4   Introduce acceptance testing.
                                                                                                                               May 08
personnel                              servicing schedule.                              Control Owner: ***
                                                                     Risk Rating    M

                                                                      Likelihood    1
                                                                                        Order all equipment in year one or
                                       None                            Impact       1   source alternative supplier.           Apr 09
 Supplier goes into liquidation
                                                                                        Control Owner: ***
 resulting in inability to order                                     Risk Rating    L
                                                                      Likelihood    2
Shortage of raw material results in    Regularly review stock          Impact       2   None
                                                                                                                               Apr 09
late deliveries                        levels.                                          Control Owner: ***
                                                                     Risk Rating    L

             Risk Owner                     Completed by                   Date         NOTES:

    Supplier goes into liquidation
           Buying Dept                          Buyer                      4/4/08

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                                                                                        Appendix 2

                                   Supply Chain Mapping

                                           Customer - WMFS

       Returns to supplier. Lead time                        Risk - how are orders placed?
       on delivery/repairs


                                                          Ordering from overseas -
       Delivery in delivery times due to                  variable exchange rate,
       customs and excise.                                communication difficulties.

                                  Manufacturer, often overseas

                                                          Problems with production and
       Transport, packaging, inspection                   supply. how many third tier

                               Third tier suppliers - raw materials

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                                                                                       Appendix 3

                                       Kraljic Matrix

                        WMFS PERCEPTION OF IMPORTANCE

         High      High-dependency items          High value strategic
                        Small equipment                  Appliances
                      Specialist equipment           Breathing Apparatus
                        Vehicles Spares                      PPE
     Risk             Appliance Bay Doors                  Energy
                                                      USAR Equipment
                   Routine items                  Important items

                         Consumables                   Premises Maint
                        Office equipment              Cutting Equipment
                             Catering              Travel & Accommodation

                                   Contract Spend


         High         Potential for          Key strategic account
                     development -           – allocate appropriate
                        nurture               resources to nurture
                                                   and protect
  of account          Nuisance –             Cash cow – maximise
                      service with               profitability
                      minimum of

            Low                                                          High

                               Score to develop account

The above assess how important the supplier is to the buying organisation (model 1) and
how the supplier sees the buying organisation (model 2). Only by carrying out this
exercise can we ascertain the risk of the supplier being more important to us than we are
to them.

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                                                                                           Appendix 4
                                         Analysis of Competition

                                        New Market Entrants, e.g.:

                                        entry ease barriers
                                        geographical factors
                                        incumbents resistance
                                        new entrant strategy
                                        routes to market

         Supplier Power, e.g.:
                                        Competitive Rivalry, e.g.:          Buyer Power, e.g.:
      brand reputation
      geographical coverage            number and size of firms        buyer choice
      product/service level            industry size and trends        buyers size/number
       quality                          fixed -vs- variable cost        change cost/frequency
      relationships with                bases                           product/service
       customers                        product/service range            importance
      bidding processes/               differentiation, strategy       volumes, JIT scheduling

                                        Product and Technology
                                           Development, e.g.:

                                        alternatives price/quality
                                        market distribution
                                        fashion and trends
                                        legislative effects

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                                                                                                                        Appendix 5

                                            PESTAL analysis for supply of PPE

POLITICAL                           Change in relationships between countries could have an effect on supply of goods
                                    manufactured outside EU, change of government may affect cost of goods.

ECONOMIC                            Changes in EC directives, UK regulations and impact of international standards, Changes to
                                    Tax affects budgets e.g. fuel.

SOCIAL                              Compliance with Ethical Trading Initiative, Diverse workforce means increase in amount of
                                    employees who are vegan.

TECHNOLOGICAL                       Technologic development could change the way orders are placed and the contract managed.
                                    Changes in technology leading to specification changes and reduction in spares.

ENVIRONMENTAL                       Sales of goods act, European directives, Contract clause in frameworks

LEGAL                               Disposal issues, bulk or direct deliveries, Extreme weather conditions

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                                                                                                                                                                                              Appendix 6

                                                           LIKELIHOOD/IMPACT RATING RISKS DESCRIPTORS

Rating LIKELIHOOD         IMPACT Financial              IMPACT Environmental IMPACT                     IMPACT                       IMPACT                   IMPACT                    IMPACT ICT/Systems
                                                                             Reputation                 Service Delivery              Physical Injury         Legal
                                                                                Significant        >25% of local objectives not                             Event requiring external    Failure or significant
                                                                                                                                     Death of employee(s)
     Very High >50%                                     Major damage to an eco- adverse publicity delivered OR permanent                                    legal advice or possibly    disruption to mobilising
                            Unplanned costs in                                                                                       or third party arising
4    Likely to occur within                             system and/or long term across entire area impact on Service Delivery                               resulting in legal action   and/or communications
                            excess of £150k                                                                                          from Fire Service
     next 3 months                                      environmental damage    covered by         to other Departments/                                    being taken against         systems across
                                                                                authority          Commands                                                 organisation                organisation
                                                                                                       11 to 24% of local            Serious (RIDDOR)         Event managed at Service Failure or significant
                            Unplanned costs above       Significant damage to      Adverse publicity
     High 25% to 50%                                                                                   objectives not delivered OR   injuries to employees)   level using formal       disruption to office
                            £50k or outside the scope   environment e.g.           within part of area
3    Likely to occur within                                                                            temporary impact on           or third party arising   procedures e.g.          systems outside
                            of the Department           discharge of pollutants    covered by
     3 to 12 months                                                                                    Service Delivery to other     from Fire Service        grievance/ complaints    Department or
                            /Command budget             into watercourse           authority
                                                                                                       Departments/ Commands         activity                 procedures               Command

                                                                                   No media                                                                   Event managed at local
                            Unplanned costs above                                                       5 to 10% of local objectives
     Medium 10% to 24%                                Spillage or pollution within attention or                                      Moderate injuries to     level using formal
                            £10k or outside the scope                                                   not delivered or significant                                                    Failure or disruption to
2    Likely to occur within                           a contained area requiring adverse publicity                                   third party as a result procedures e.g.
                            of the Department                                                           impact on core activity of                                                      critical local services
     two years                                        external clean up            confined within                                   of Fire Service activity grievance/ complaints
                            /Command budget                                                             Department/ Command
                                                                                   organisation                                                               procedures

                                                                                    No media
                          Unplanned costs below
     Low <10% Unlikely                                                              attention or        < 5% of local objectives not
                          £10k or those which fall      Minor spillage or pollution                                                  Minor injury to     Event managed at local
     to occur within next                                                           adverse publicity   delivered or minor impact                                                       Failure or disruption to
1                         within the scope of the       within a contained area                                                      employee not RIDDOR level through informal
     two years or not                                                               confined within     on core activity of                                                             non critical local services
                          Department/ Command           dealt with by organisation                                                   reportable          action
     anticipated to occur                                                           Department/         Department/ Command

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                                                                                                                            Appendix 7

                                            RISK ACCEPTANCE & TOLERANCE MATRIX

L      L4    M     M      H      H          RISK RATING      ACTION
K                                                          Immediate action required. Risk realisation likely. Existing
       L3    L     M      M      H          High (H)
E                                                          control measures not effective. Initiate contingency plans.
L                                                          Consider further action. Risk realisation increasingly likely.
       L2   V.L    L     M.      M          Medium (M)
I                                                          Existing control measures having limited impact.
H                                                          No action required. Risk within tolerance. Existing control
       L1   V.L    V.L    L      M          Low (L)
O                                                          measures having impact but ongoing monitoring required.
O                                                          No action required. Risk under control. Existing control
D            I1    I2     I3     I4         Very Low (V.L)
                                                           measures effective. Keep risk under review.
      IMPACT (I)

All risks should be assessed in terms of likelihood and impact using the appropriate risk descriptors. This assessment should take
account of existing control measures. The resulting RISK RATING should then be used to identify the required course of action.

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