Supply Chain Risk Management

221

12

Emerging Risk Management Tools,

Techniques, and Approaches

is chapter presents a variety of emerging tools, techniques, and

approaches to address and manage supply chain risk. ey appear here

because they are not fully developed or implemented at most rms. e

approaches we present include becoming a preferred customer, creating

supply chain heat maps, mapping the supply chain, declustering clusters,

creating a exible supply chain, creating a risk war room, and managing

operational working capital. Other emerging approaches, including total

cost measurement, estimating available supplier capacity, and calculating

risk scores, appear elsewhere in the book.

BECOME A PREFERRED CUSTOMER

Supply chain leaders understand that the link between positive relation-

ships with suppliers and improved corporate performance is a strength-

ening rather than weakening one. Companies that fail to develop positive

relationships may nd their suppliers allocating limited capacity to other

rms, sharing their most innovative ideas with other customers, or exiting

an industry segment altogether, all of which will lead to increased risk. As

our research clearly shows, becoming the preferred customer to suppli-

ers oers advantages that are not as readily available to other customers,

advantages that could lead to future competitive advantage and reduced

risk.

1

As one executive summed up clearly during a research interview,

“Becoming a preferred customer is going to be one of the best ways we

have to manage supply chain risk in the future.”

222 • Supply Chain Risk Management: An Emerging Discipline

A research project involving hundreds of suppliers revealed a clear link

between a customer’s (i.e., the buyer) behavior, the satisfaction level a sup-

plier has with a customer, and a supplier’s willingness to provide preferen-

tial treatment that less- satised suppliers are not willing to provide. e

following summarizes three important ndings from that research.

Supplier satisfaction relates directly to a customer’s performance and

behavior rather than demographic or other attributes.

Supplier satisfaction correlates signicantly with factors that relate to a

customer’s behavior toward the supplier (i.e., pay on time, share relevant

information, treat suppliers ethically, etc.) rather than demographic or

other factors such as supplier size or the size of a contract. Interestingly,

a slight negative correlation exists between the total years a supplier has

worked with the customer and lower satisfaction with that customer,

which presents clear risk implications.

No statistical relationship exists between the size of a supplier in terms of

sales and supplier satisfaction with the buying customer. Furthermore, no

relationship exists between the size of the contract relative to the supplier’s

total sales and supplier satisfaction with the buying customer. Supplier

satisfaction relates directly to customer performance and behavior rather

than the volume of sales that the customer represents. is is welcome

news because it suggests customers can change their behavior to improve

supplier satisfaction, thereby leading to preferred customer benets.

e relationship between supplier satisfaction and viewing a customer

as preferred is extremely strong.

e correlation between supplier satisfaction and viewing a customer as

preferred is unusually strong. is strong indicator reveals a clear link

between satisfaction and preferred customer status. An important conclu-

sion is that becoming a preferred customer will likely not occur if a sup-

plier is dissatised with a buying customer.

Satised suppliers are more willing to provide valuable kinds of pref-

erential treatment to their preferred customers compared with less-

satised suppliers.

A clear statistical relationship exists between supplier satisfaction with

a customer and the willingness of that supplier to provide certain (and

valuable) kinds of preferential treatment. What is surprising is that in