Risk management. Knowledge based on experience.
Anticipating risk and preventing it, we learn through experience (ours or others)
We can divide risk in diverse ways. We have e.g. political risk, natural disasters, financial risk, technological risk, supplier dependence, legal risk ...
Another look at the risk allocation is a split between known and unknown risk. In the case of known risk, we have experienced it in the past, unfortunately often the hard way. To save ourselves from pain in the future and using the "lesson-learnt" principle, we implement appropriate preventive measures. Every industry has examples of this type. In aviation, due to the damage to aircraft engines by birds, the so-called "bird strike" test. Another interesting test is Fan Blade-off, based on its results, solutions were introduced that allow to avoid tragic consequences, such as penetration of the fuselage or fire engine.
Risk management. May knowledge be acquired the hard way least often as possible.
In the case of unknown risk, with which no one has encountered before, it is worse. An interesting case in the automotive industry may be the so-called “connected cars”. Cars connected to the network, and thus exposed to the risk of a cyber-attack and, for example, taking control of a car by a hacker. Many companies are working on appropriate security, which will have to be improved on an ongoing basis as the techniques used by hackers develop. This is a risk that the automotive industry has not dealt with on a large scale.
If we have not met the risk so far, it is difficult for us to see it and assess its impact on the business.
Most companies will now implement a solution related to situations similar to the coronavirus, carry out stress tests and analyze to what extent they are exposed and to what extent they are ready to deal with a similar threat in the future. But is it enough?
A reliable analysis should take into account various risk categories, comparison with experience in other industries so that we do not overlook something that others have learned the hard way. In the case of supplier management, apart from the risks related to Q (quality), D (timely deliveries), C (cost), T (technology), we should also consider M (management), which includes a.o. contract risk, supplier's financial situation.
Keep in mind the growing aspirations of Polish suppliers to enter the league in such industries as automotive, aviation or railways, it is reasonable to analyze contract risk and put emphasis on the verification of records that the company has with customers and suppliers - "flow-down", i.e. transferring selected conditions that we have with customers for suppliers.
Stopping an OEM factory costs up to € 30,000 / minute. Stopping one shift is an astronomical costs amount of € 14.4 million! These costs include a.o. compensation of production workers, stopping and restarting machines, express transport (e.g. taking out planes), lost profits ... If it is caused by the supplier, the customer will try to transfer at least some of these costs to him. Can the company afford it? It is crucial to understand what the consequences of a breach of contract may be, the reasons may be internal or caused by subcontractors.
An OEM stopping the factory is even a cost € 30,000 / minute. What are the consequences of failure to comply with the contract?
Supply chain risk audit and the implementation of supplier management tools such as ESSA help to avoid costly mistakes. Eveneum experts had to deal with bankrupt suppliers during the crisis, allocation of raw materials, taking over suppliers by competitors, disruptions caused by natural disasters. Looking at your situation, an external consultant can see threats that you may not see, he can compare the situation of your company with his experiences. All this to define risks, determine their criticality for your company and develop a counteraction plan.
If you are interested in how the leaders in the automotive, aviation, medical and financial industries deal with risk, please contact us at email@example.com or directly with Szymon Tochowicz, Rafał Dados.