Learning from Risk
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 Scientic,
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 oers
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 Scientic Corporation (BSC), a company started
in 1979 with 38 employees and $2 million in sales.
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
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 denes supplier
risk management as a proactive and systematic process for cost- eectively
identifying and reducing the frequency and severity of unwanted events in
the supply chain that have an adverse eect 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 specic objectives—gain visibility to high- risk suppliers that require
attention, identify and understand the specic 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 dierent 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 dierent Boston
Scientic business units and plants as well as to suppliers.
Having the Right Tools
Aer its initial analysis, Boston Scientic 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 specic risk events, which create the outer ring of the wheel.
Risk categories that contain these identied 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 aects 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