Supply Chain Risk Management

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14

Learning from Risk

Management Leaders

Although most companies have a way to go before they can brag about

their risk management prowess, some companies have achieved distinc-

tion, at least in some aspect of risk management. is chapter highlights a

variety of companies that have demonstrated their commitment and skills

when pursuing supply chain risk management (SCRM): Boston Scientic,

Boeing, IBM, Cisco, Delphi, and a major defense contractor. e pur-

pose of this chapter is to appreciate what leading companies are doing to

become risk management leaders. We also highlight a company that oers

risk- related lessons learned the hard way.

MAKING RISK MANAGEMENT A PRIORITY

AT BOSTON SCIENTIFIC

A company that is widely recognized at being at the top of its risk man-

agement game is Boston Scientic Corporation (BSC), a company started

in 1979 with 38 employees and $2 million in sales.

1

Today, with a world-

wide workforce of 24,000 employees, more than $7 billion in sales from

more than 100 countries, and a product portfolio containing 15,000

products, it is not surprising that a company this complex continuously

faces uncertainty.

Even before the 2008 economic downturn BSC had taken a heightened

interest in the impact of supplier risk on the company’s operations. In this

regard the company is an early risk management adopter. e company

created a detailed Supplier Risk Management program to help prepare for

268 • Supply Chain Risk Management: An Emerging Discipline

any anticipated and unanticipated risks they may face. BSC denes supplier

risk management as a proactive and systematic process for cost- eectively

identifying and reducing the frequency and severity of unwanted events in

the supply chain that have an adverse eect on the business.

e primary goal of BSC’s program is to move from being a reactive

risk taker to being proactive toward risk, thereby allowing the company

to reduce its overall risk exposure. e company divides this goal into

four specic objectives—gain visibility to high- risk suppliers that require

attention, identify and understand the specic drivers that increase sup-

plier risk, proactively manage and mitigate supply chain risk, and measure

risk mitigation and its impact.

BSC followed a three- step process when designing its risk management

program. e rst step, information acquisition, required BSC to gather

and access information from the external environment, suppliers, and the

analysis of dierent parts and components. e second step involved com-

piling this information using basic risk management systems and tools. e

nal step involved communicating this information to dierent Boston

Scientic business units and plants as well as to suppliers.

Having the Right Tools

Aer its initial analysis, Boston Scientic designed a formalized process

to manage supplier risk. is process includes (1) identifying risk areas,

(2) analyzing and prioritizing these risks, (3) developing risk mitigation

plans to address high- risk areas, and (4) tracking high- risk areas.

To support this process the company has developed a primary risk tool

it calls the Supplier Risk Wheel. Each supplier has its own wheel. e pur-

pose of this tool is to identify high- risk events and risk categories that

require action. e Supplier Risk Wheel starts with data and survey inputs

to identify specic risk events, which create the outer ring of the wheel.

Risk categories that contain these identied risk events comprise the

middle circle of the wheel. Each risk item (outer ring) and risk category

(middle ring) is assigned a color based on the level of risk it involves (red =

very high risk, light red = high risk, yellow = medium risk, light green = low

risk, dark green = very low risk), and each level aects the next. Finally, the

risk categories are used to calculate the overall supplier Risk Probability

Index (RPI), which is the center circle of the wheel.

BSC has developed other tools, including a Risk Distribution Matrix and

a Supplier Comparison Report, to provide further risk insight. e Risk