The Lehigh Business Supply Chain Risk Management Index (LRMI), developed by the Center for Supply Chain Research at Lehigh University and the Council of Supply Chain Management Professionals, has recently been launched. The Index, reported quarterly, shows supply chain managers’ ranking of 10 broad areas of supply chain risk. The categories are:
- Customer Risk
- Cyber Security Risk •
- Economic Risk
- Environmental Risk
- Government Intervention Risk
- Operational Risk
- Quality Risk
- Supplier Risk
- Technological Risk
- Transportation Risk
Concerning recent results, the LRMI number for the 3rd quarter of 2020 is 69.49. The total LRMI rating for each quarter is the average level of risk on a scale of 0-100, across all 10 categories.
The four biggest risks in Q3 2020 are:
- Economic Risk
- Supplier Risk
- Customer Risk
- Transportation Disruption Risk
According to Professor Zach Zacharia, Ph.D., associate professor of Supply Chain Management and director of the Center for Supply Chain Research at Lehigh, “A number near 70 is extremely high risk…With the high amount of disruption and uncertainty associated with the pandemic it is easy for managers to believe that everything is high risk, but the LRMI assesses what particular set of risks stand out as especially problematic.”
An interesting part of the Index includes comments submitted by responding professionals concerning the different categories of risk. For example for the Supplier Risk category, which includes these topics: Single/Sole source supplier, Suppliers from one geographic location, Supplier quality issues, Price volatility, and Counterfeit products:
We’ve seen a lot of negative disruption during this COVID environment. For example, food companies have seen demand spike, but most have changed their supply chains to buy from China to meet shareholder value without creating contingency plans in the event of a disruption. We are now seeing that a lot of these companies traded resilience for profit-maximization.
With so many companies leaving China, the risk with Chinese suppliers has really increased. Once you announce you are leaving a Chinese supplier, product quality and on-time scheduling often suffers. In addition, some suppliers won’t ship the final production until they are paid in full. One way to keep your risk
As more data gets collected, risk trends will be more deeply understood. The quarterly reports reports will be available on September 15, December 15, March 15 and June 15.
You can read the the 3Q 2020 Quarterly report here.
