Scope and dimensions for assessing the impact. Ideally, initial assessment of the level of impact includes all business partners so that complete transparency about the criticality of the entire supplier portfolio can be ensured. In this way, information is obtained regar-ding which business partners have a significant impact on sales, margins, or profit for example. We strongly recommend not carrying out a selection according to strategically important suppliers or suppliers with high purchasing volumes. Even C-part suppliers, whose parts may be found in several products, can present a high risk. A study done by the Massachusetts Institute of Technology, in collaboration with Ford, demonstrates this point: the highest risks actually originate from low-cost component suppliers that only represent 2 % of the purchasing volume. Initial assessment of the suppliers using classifications based on high, medium and low criticality, for example, can help organizations make decisions with regards to future impact assessment timeframes. Accordingly, extremely critical suppliers could be assessed on an annual basis, for instance, while longer cycles may be sufficient for medium and low-risk business partners.

Additional dimensions should be included for criticality assessments of the entire supply chain such as loca-tions, countries and logistics hubs. These parameters can impact availability and the degree of substitutabi-lity. Where suppliers provide different product groups, determination of criticality related to a specific product group or article is also required. This assessment will show whether different criticality levels apply to the in-dividual product groups provided by a supplier. It will also provide information on which suppliers or product groups present the greatest dependencies. Ideally,

sub-supplier structures should also be included in the criticality assessment. Supplier portfolios previously assumed to be low risk suddenly have a high degree of criticality when looking at the sub-tier level. The rela-tions among suppliers in the sub-tier structure reveals a network of relationships that practically result in single-source situations.

Key questions and parameters for criticality assessments. In the initial evaluation phase, the "less is more" approach can be applied when asking the key questions around the assessment of the extent of loss or damage. Even in the first stage, between three and five parameters already provide a good overview of criticality/dependencies in the supply chains. For assessing relative criticality, we recommend the fol-lowing parameters:

• Total time to recover (TTR)

• Degree of substitutability or relocation time

• Impact on corporate image

Possible additional parameters for detailed evaluation in the case of an event include:

• Number of qualified alternative suppliers

• Number of customers affected

• Costs for corrective marketing and sales activities

• etc.

The financial impact of a supply disruption can also be evaluated by means of the following parameters: impact on sales, margins or EBIT.

Here, the procurement organization may need to change their traditional way of thinking as the correla-tion between the level of purchasing volume and the level of loss or damage is low in a supply disruption. It is

Once an organization enables transparency about risks in order to identify preventive and urgent actions required along the supply chain, it is essential to assess the impact of the supply chains affected. In most cases, determining criticality related to a specific product group or article is also indispensable. The granularity gained in the criticality assessment enables adequate and targeted measures to be implemented when a crisis occurs.

Supply Chain RiSk ManageMent2. RISK IMPACT assessment

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Karl-Heinz Pöhlmann, Group Vice President Supply Chain, HBM

˝In this way we receive a detailed prognosis of the impact of a supply disruption and how this will affect the profitability of the company," explains Karl-Heinz Pöhlmann, Group Vice President Supply Chain at HBM.˝

therefore important to use specific sales or lost profit dimensions for the financial evaluation.

Integration of risk management in the organization. Internal information sources should be the first place to go for answers pertaining to the evaluation. Know-how for purposes of the evaluation can in 95 % of cases be found with the responsible lead buyers, commodity managers or logistics experts. Data for the complete evaluation can be automatically sourced via BI tools or ERP systems and then integrated. Smooth integration of the risk analysis in the organization requires that the cycle-based evaluation is incorporated in the role profiles of the relevant responsible parties. To this end, it is helpful to set up an automated process for supporting their tasks by way of email notifications, system- supported assessments and evaluation and analysis options.

Portfolio analysis. The results of risk analysis, com-bined with the results of risk identification are best illus-trated in the form of a portfolio (see figure). The color of the fields (red, yellow, green) represents the level of risk and criticality. The objects in the red area must be given priority in terms of monitoring. Furthermore, it should be noted that the size of the objects reflects the total extent of loss or damage. The larger the object, the higher the potential financial loss in terms of sales or profit of the company. Both the positioning and size of the objects are the basis for planning risk measures. In addition, the evaluation parameters (see above) can be used as supplementary information for other procurement pro-cesses such as supplier validation, supplier classifica-tion, supplier development or contract award decisions.

Hottinger Baldwin Messtechnik (HBM), experts in measuring technology for determining electrical and mechanical parameters, use an evaluation matrix and portfolio analysis of this nature for assessing risks in their supply chain.

Benefits of risk assessment:

• Prerequisite for adequate, preventive and reactive measures (reduce, prevent, transfer)

• Basis for development of a risk management and portfolio strategy, e. g. for procurement market analysis, product group strategy, contract award decisions, warehousing, CSR and compliance

• Reduced CBI insurance premiums of up to 50 %*

* Source: "ROI of Supply Chain Risk Management" study, eckseler consult & riskmethods

Supply Chain RiSk ManageMent2. RISK IMPACT assessment

As a result, HBM is able to identify which suppliers require certain measures for risk prevention.

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